A key measure of U.S. consumer confidence declined in November amid continued high inflation and rising interest rates. The Conference Board reported that its Consumer Confidence Index fell to 100.2 from 102.2 in October.

“Consumer confidence declined again in November, most likely prompted by the recent rise in gas prices,” Lynn Franco, senior director of economic indicators at The Conference Board, stated in a press release. “The Present Situation Index moderated further and continues to suggest the economy has lost momentum as the year winds down. Consumers’ expectations regarding the short-term outlook remained gloomy. Indeed, the Expectations Index is below a reading of 80, which suggests the likelihood of a recession remains elevated.

“Inflation expectations increased to their highest level since July, with both gas and food prices as the main culprits. Intentions to purchase homes, automobiles and big-ticket appliances all cooled,” Franco added. “The combination of inflation and interest-rate hikes will continue to pose challenges to confidence and economic growth into early 2023.”

A separate measure of the consumer’s mood was also lower in November. The University of Michigan reported that its Consumer Sentiment Index fell to 56.8 from 59.9 in October.

“Consumer sentiment fell 5% below October, offsetting about one-third of the gains posted since the historic low in June,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “Along with the ongoing impact of inflation, consumer attitudes have also been weighed down by rising borrowing costs, declining asset values and weakening labor market expectations.

“Buying conditions for durables, which had markedly improved last month, decreased most sharply in November, falling back 19% to its September level on the basis of high interest rates and continued high prices,” Hsu added. “Long-term business conditions declined a more modest 6%, while short-term business conditions and personal finances were essentially unchanged. Inflation expectations were also little changed from October.”

The Commerce Department says consumer spending rose 0.8% in October. Personal income rose 0.5%.

Inflation rose in October. The Personal Consumption Expenditures Price Index, excluding the volatile food and energy categories, rose 0.2%, down from 0.5% in September. The core PCE price index rose 5% on a year-over-year basis.

The Conference Board reported that its Leading Economic Index decreased by 0.8% in October, to 114.9, after a decline of 0.5% in September.

“The U.S. LEI fell for an eighth consecutive month, suggesting the economy is possibly in a recession,” Ataman Ozyildirim, senior
director, economics, at The Conference Board, stated in a press release. “The downturn in the LEI reflects consumers’ worsening outlook amid high inflation and rising interest rates, as well as declining prospects for housing construction and manufacturing. The Conference Board forecasts real gross domestic product growth will be 1.8% year-over-year in 2022, and a recession is likely to start around year-end and last through mid-2023.”

The mood at the nation’s small businesses dimmed slightly in October. The National Federation of Independent Business reported that its Small Business Optimism Index declined 0.8 points, to 91.3, the 10th consecutive month that the index has been below the 49-year average of 98.

“Owners continue to show a dismal view about future sales growth and business conditions but are still looking to hire new workers,” NFIB chief economist Bill Dunkelberg stated in a press release. “Inflation, supply-chain disruptions and labor shortages continue to limit the ability of many small businesses to meet the demand for their products and services.”

Thirty-three percent of member business owners said inflation was their single most important problem in operating their business in October. Forty-six percent of owners reported job openings that were hard to fill, a figure that was unchanged from September.

A net 44% of owners, seasonally adjusted, said they raised pay during the month.

Confidence among the nation’s home builders continued to decline in November. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index fell for the 11th consecutive month, dropping five points to 33. The confidence level was the lowest since June 2012, with the exception of the start of the Covid-19 pandemic in spring 2020.

“Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce,” NAHB chairman Jerry Konter, a home builder and developer from Savannah, Ga., stated in a press release. “With the housing sector in a recession, the Biden administration and new Congress must turn their focus to policies that lower the cost of building and allow the nation’s home builders to expand housing production.”

NAHB chief economist Robert Dietz added: “Even as home prices moderate, building costs, labor and materials — particularly for concrete — have yet to follow. To ease the worsening housing affordability crisis, policy-makers must seek solutions that create more affordable and attainable housing. With inflation showing signs of moderating, this includes a reduction in the pace of the Federal Reserve’s rate hikes and reducing regulatory costs associated with land development and home construction.”

All three HMI component indexes posted declines in November. The index that measures current sales conditions fell six points, to 39; the gauge that measures sales expectations in the next six months dropped four points, to 31; and the index that measures the traffic of prospective buyers dipped five points, to 20. Any number above 50 indicates that more builders view conditions as good rather than poor.

The U.S. Department of Commerce reported that sales of new homes rose 7.5%, to a seasonally adjusted annual rate of 632,000, in October from a revised 588,000 in the previous month. The median sales price in October rose to a record $493,000.

Existing-home sales fell for the ninth month in a row in October. The National Association of Realtors reported that sales fell 5.9% from September to a seasonally adjusted annual rate of 4.43 million.

“More potential home buyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher,” NAR chief economist Lawrence Yun stated in a press release. “The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years.”

The NAR also reported that the median existing-home price was $379,100 in October, an increase of 6.6% from the same month a year earlier. The gain marks 128 consecutive months of year-over-year increases, which the NAR says is the longest-running streak on record.“Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Yun said. “In October, 24% of homes received over the asking price. Conversely, homes sitting on the market for more than 120 days saw prices reduced by an average of 15.8%.” 

This article was originally published in the January 2023 issue.