Inflation, pandemic dampen consumer confidence

WASHINGTON • U.S. consumer confidence dropped to a nine-month low in November amid worries about the rising cost of living and pandemic fatigue, but that did not change expectations for stronger economic growth this quarter.

The survey from the Conference Board on Tuesday showed consumers less enthusiastic about buying a house and big-ticket items such as motor vehicles and major household appliances over the next six months, likely because of shortages, which have boosted prices. Consumers held strong views of the labor market, with the gap between those saying jobs are plentiful versus hard to get widening to a record high.

“This isn’t a cause for concern as the relationship between spending and sentiment is loose, particularly in the short-run,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The good news is that consumers’ assessment of the labor market improved in November, pointing toward further acceleration in job growth.”

The Conference Board said its consumer confidence index fell to 109.5 this month, the lowest reading since February, from 111.6 in October. The survey was conducted before the discovery of Omicron, a new COVID-19 variant.

Economists polled by Reuters had forecast the index falling to 111.0. The measure, which places more emphasis on the labor market, is down from a peak of 128.9 in June. The fall was less than that of the University of Michigan’s survey of consumer sentiment, which hit a decade low.

Data this month have suggested that the economy was accelerating in the fourth quarter, with consumer spending surging in October and first-time applications for unemployment benefits at a 52-year low.

That led economists to raise their growth estimates for the fourth quarter to as high as an 8.6% annualized rate. The economy grew at a 2.1% pace in the July-September quarter.

But the outlook for next year has been clouded by the omicron variant.

While economists expect consumer confidence to decline further because of both the Delta and Omicron variants, they held onto their lofty growth forecasts for the current quarter.

“We currently expect the Omicron variant will have only a moderate negative impact on growth,” said Nancy Vanden Houten, chief U.S. financial economist at Oxford Economics in New York. “We still anticipate real GDP growth of 7.9% in fourth quarter and real consumer spending growth of 6.5%.”

Stocks on Wall Street fell. The dollar rose against a basket of currencies. U.S. Treasury prices were mixed.

The Conference Board’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, jumped to a reading of 46.9 this month, the highest on record, from 43.8 in October.

This measure correlates to the unemployment rate from the Labor Department.

Combined with multi-decade low jobless claims, it raises hopes that employment growth accelerated further this month, though a shortage of workers remains a challenge. There were 10.4 million job openings at the end of September.

Consumers’ inflation expectations over the next 12 months surged to 7.6%, the highest since June 2008, from 7.1% last month. Federal Reserve Chair Jerome Powell told lawmakers on Tuesday that the risk of higher inflation has increased and that it was appropriate to consider wrapping up bond purchases.

“These data provide further evidence that inflation expectations held by the general public are beginning to become unanchored,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York.

Rising inflation is starting to influence consumers’ spending decisions, the Conference Board survey suggested. The share of consumers planning to buy a motor vehicle over the next six months was the smallest in the current series. There was a break in the series in November 2010. Motor vehicles are scarce because of a global semiconductor shortage.

Buying intentions for household appliances like television sets and refrigerators also fell, though intentions to purchase washing machines and clothes dryers rose. Consumers were less inclined to buy a house over the next six months, reflecting a dearth of homes on the market. Slowing demand could help to further cool house price inflation.