Two key measures of U.S. consumer confidence retreated in April as Americans became somewhat pessimistic about the job market and their prospects for future income. The Conference Board reported that its Consumer Confidence Index fell six points, to 97, from a downwardly revised 103.1 in March. It was the third consecutive monthly decline for the index, although The Conference Board also reported that the index “continues to move sideways within a relatively narrow range” in which it has sat for more than two years.
“Confidence retreated further in April, reaching its lowest level since July 2022 as consumers became less positive about the current labor market situation, and more concerned about future business conditions, job availability and income,” Dana M. Peterson, chief economist at The Conference Board, stated in a press release. “Despite April’s dip in the overall index, since mid-2022, optimism about the present situation continues to more than offset concerns about the future.
“In the month, confidence declined among consumers of all age groups and almost all income groups except for the $25,000 to $49,999 bracket,” Peterson added. “Nonetheless, consumers under 35 continued to express greater confidence than those over 35. In April, households with incomes below $25,000 and those with incomes above $75,000 reported the largest deteriorations in confidence. However, over a six-month basis, confidence for consumers earning less than $50,000 has been stable, but confidence among consumers earning more has weakened. According to April’s write-in responses, elevated price levels, especially for food and gas, dominated consumers’ concerns, with politics and global conflicts as distant runners-up.”
Meanwhile, a separate indicator of consumer sentiment declined slightly in April as Americans said they expected the rate of inflation to rise somewhat in the year ahead. The University of Michigan reported that its Consumer Sentiment Index fell from 79.4 in March to 77.2 in April. Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release that consumers expect inflation to rise to about 3.2% in the short term.
“Consumer sentiment continued to plateau and was virtually unchanged for the third month in a row,” Hsu said. “Since January, sentiment has remained remarkably stable within a very narrow 2.5-index-point range, well under the 4.8 points necessary for a statistically significant difference in readings. The long-run business outlook inched up to reach its highest reading since June 2021, while views of personal finances softened. Different parts of the population exhibited offsetting changes [in April]. Republicans posted notable declines in sentiment, whereas Democrats and independents did not. Sentiment for younger consumers rose, in contrast to middle-aged and older adults whose sentiment changed little or fell. Overall, consumers continue to express uncertainty about the future trajectory of the economy, pending the outcomes of the up-coming election, but at this time there is no evidence that global geopolitical factors are on the forefront of consumers’ minds.”
The U.S. Department of Commerce reported that consumer spending rose by a strong 0.8% in March, just as it did in February. Personal income rose 0.5% after a gain of 0.3% in February. “Consumers appear to have solid momentum coming out of the first quarter,” Daniel Silver, an economist at JPMorgan, told Reuters. “While we don’t have much hard data for the second quarter at this point, the endpoint for the first quarter suggests that second-quarter spending growth could be strong.”
Inflation showed moderate growth in March that matched the rate of increases from the previous month. The Commerce Department reported that the Personal Consumption Expenditures Price Index rose 0.3%. On a year-over-year basis, the PCE index was up 2.7%. Excluding the volatile food and energy components, the core PCE index rose 0.3% in March after a similar gain the previous month. Core PCE inflation was up 2.8% on a year-over-year basis.
The PCE index is the Federal Reserve’s preferred inflation gauge. The Fed has as its goal an inflation rate of 2.0%. “The hot inflation readings through March should write off any [interest] rate cuts in the first half of 2024,” Nationwide senior economist Ben Ayers told Bloomberg. “There is also a risk that the further economic resilience pushes off any rate declines until 2025, a key downside risk for growth next year.”
The Conference Board reported that its Leading Economic Index fell 0.3% in March, to 102.4, after increasing by 0.2% in February. The February improvement was the first for the index in two years. “February’s uptick in the U.S. LEI proved to be ephemeral as the index posted a decline in March,” Justyna Zabinska-La Monica, senior manager, business cycle indicators, at The Conference Board, stated in a press release.
“Negative contributions from the yield spread, new building permits, consumers’ outlook on business conditions, new orders and initial unemployment insurance claims drove March’s decline,” Zabinska-La Monica added. “The LEI’s six-month and annual growth rates remain negative, but the pace of contraction has slowed. Overall, the index points to a fragile — even if not recessionary — outlook for the U.S. economy. Indeed, rising consumer debt, elevated interest rates and persistent inflation pressures continue to pose risks to economic activity in 2024. The Conference Board forecasts GDP growth to cool after the rapid expansion in the second half of 2023. As consumer spending slows, U.S. GDP growth is expected to moderate over Q2 and Q3 of this year.”
The nation’s gross domestic product rose at an annualized pace of just 1.6% in the 2024 first quarter, significantly below estimates.
The mood at the nation’s small businesses darkened only slightly in March, but the decline in the Small Business Optimism Index at the National Federation of Independent Business still showed that it fell to its lowest level since December 2012. The NFIB reported that the index declined 0.9 points, to 88.5. “Small-business optimism has reached the lowest level since 2012 as owners continue to manage numerous economic headwinds,” NFIB chief economist Bill Dunkelberg stated in a press release. “Inflation has once again been reported as the top business problem on Main Street, and the labor market has only eased slightly.”
Twenty-five percent of member business owners said that inflation was their single, most important problem in operating their business, a figure that was up 2% from February. Eighteen percent said that labor quality was their most important problem. A seasonally adjusted 37% of owners reported job openings they could not fill. Also seasonally adjusted, a net 38% of owners reported raising pay in March, up 3% from the February reading, which was the lowest since May 2021.
Confidence among the nation’s home builders was flat in April. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index was at 51, which ended a four-month string of gains for the index. “With many frustrated buyers back on the fence waiting for interest rates to fall, policymakers can help ease affordability challenges by reducing inefficient regulatory rules that raise housing costs and limit supply,” NAHB chairman Carl Harris, a custom-home builder from Wichita, Kan., stated in a press release.
NAHB chief economist Robert Dietz added: “April’s flat reading suggests potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed. With the markets now adjusting to rates being somewhat higher due to recent inflation readings, we still anticipate the Federal Reserve will announce future rate cuts later this year, and that mortgage rates will moderate in the second half of 2024.”
The three major HMI indexes were mixed in March. The index that charts sales conditions in April rose one point, to 57; the index that gauges the traffic of prospective buyers also rose one point, to 35; and the component that measures sales expectations in the next six months fell two points, to 60. Any number above 50 indicates that more builders view conditions as good rather than poor.
The Commerce Department reported that sales of new homes rose by a solid 8.8%, to a seasonally adjusted annual rate of 693,000. The pace was also up 8.3% from the same month a year earlier. “Although consumer demand has been somewhat dampened due to higher interest rates, builders continue to supply new homes to the market to lift inventory to make up for the low resale supply,” Harris said. “[Interest] rates moving above 7%, however, will move some home buyers to the sidelines as the spring progresses.”
Added Dietz: “Shelter inflation remains the largest lingering obstacle to lower inflation. More housing supply will ultimately tame shelter inflation growth and lower interest rates. This will improve the cost of financing for land developers and home builders, and enable more attainable housing supply.”
The median new-home sale price was $430,700 in March, up nearly 6% from February and 1.9% from a year earlier. The National Association of Realtors reported that existing-home sales fell in March, dropping 4.3% to a seasonally adjusted annual rate of 4.19 million. “Though rebounding from cyclical lows, home sales are stuck because interest rates have not made any major moves,” NAR chief economist Lawrence Yun stated in a press release. “There are nearly 6 million more jobs now, compared to pre-Covid highs, which suggests more aspiring home buyers exist in the market.”
The median existing-home price was $393,500 in March, up 4.8% from the same month a year earlier. The NAR reported the ninth month in a row of year-over-year price gains. The NAR also reported that the total registered housing inventory at the end of March was 1.11 million units, up 4.7% from February. “More inventory is always welcomed in the current environment,” Yun said. “Frankly, it’s a great time to list, with ongoing multiple offers on midpriced properties and, overall, home prices continuing to rise.”
This article was originally published in the June 2024 issue.
