Rising cost of living hurts US consumer confidence; Housing prices soar

  • Consumer confidence index fell to 106.4 in May
  • declining labor market scale; He says more jobs are hard to find
  • Buying intentions for cars, homes and major appliances are easy
  • Home prices accelerate in March year-on-year

WASHINGTON (Reuters) – U.S. consumer confidence slipped slightly in May as persistently high inflation and rising interest rates force Americans to be more cautious about buying expensive items such as cars and homes that could limit economic growth.

Tuesday’s Conference Board survey also showed that consumers’ perceptions of the labor market are declining slightly this month. Although the drop in confidence was minimal, it indicates that aggressive monetary policy actions by the Federal Reserve to slow demand are starting to have an effect.

“We can never underestimate the American consumer,” said Jennifer Lee, chief economist at BMO Capital Markets in Toronto. “But plans to pull back on buying, and become a little more cautious, is something the Fed would welcome as it aims to cool demand.”

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The Conference Board’s Consumer Confidence Index fell to a reading of 106.4 this month. The data for April was revised higher to show the index at 108.6 instead of the previous reading of 107.3. The index remains above its epidemic lows.

It fared much better than the University of Michigan survey, with the Consumer Confidence Index dropping to an 11-year low. The Conference Board survey focuses more on the job market.

The survey’s so-called labor market differential, drawn from respondents’ opinions data on whether jobs are plentiful or hard to come by, fell to 39.3 this month from a reading of 44.7 in April. It was the first time in a year that this measure, which is linked to the unemployment rate from the Department of Labor, was below 40.

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About 12.5% ​​of consumers saw jobs as “hard to come by,” up from 10.1% in April. In nominal terms, it indicates that unemployment may have risen from a two-year low of 3.6% in April.

Despite somewhat unfavorable consumer perceptions, the labor market is narrowing, with the Conference Board noting that they “expect labor market conditions to remain relatively strong, which should continue to support confidence in the short term.”

There were 11.5 million record jobs on the last day of March, and 4.5 million workers quit.

Stocks on Wall Street were lower. The dollar settled against a basket of currencies. US Treasury bond prices fell.

Consumer confidence
An employee hangs children’s clothing at a Target store in King of Prussia, Pennsylvania, US, November 20, 2020. REUTERS/Mark McKella/File photo

Peak inflation

Consumer inflation expectations over the next 12 months fell to 7.4% from 7.5% in April. This fits with economists’ views that inflation has likely peaked.

The Federal Reserve has raised its policy rate by 75 basis points since March. The US central bank is expected to raise the overnight interest rate by half a percentage point at each of its upcoming meetings in June and July.

As prices continue to rise and borrowing costs rise, consumers are reassessing their spending plans. The share of consumers who plan to buy a car over the next six months has decreased. Few consumers intend to purchase major household appliances such as refrigerators, washers, dryers, and televisions.

But purchasing plans remained at sufficient levels to sustain growth in consumer spending and an expansion of the overall economy. Rising interest rates and the accompanying tightening of financial conditions have Americans worried about an impending recession. Economists say concern about the economic downturn has been exaggerated, pointing to rising rates of jobs and resignations.

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“Recessions are ultimately a loss of faith,” said Bernard Yaros, an economist at Moody’s Analytics in West Chester, Pennsylvania. “However, consumers are not afraid when it comes to job security. People are leaving their jobs at an exponential rate, knowing that they would easily find another given the record number of vacancies.”

Consumers this month also showed less inclination to buy a home as rising mortgage rates and record home prices eroded affordability.

A separate report on Tuesday showed that the S&P CoreLogic Case-Shiller 20 metropolitan home price index rose 21.2% year-over-year in March after rising 20.3% in February. A tight inventory, especially for previously owned homes, causes home prices to rise. Significant price gains have been recorded in a number of cities including Tampa, Phoenix and Miami.

Strong home price inflation boosted another report from the Federal Housing Finance Agency that showed home prices rose 19% in the 12 months through March after rising 19.3% in February. Price gains were across the board, with increases notable in the South Atlantic, East South Central, West South Central, Mountain and Pacific regions.

shiller bag

As demand slows, house price inflation will subside. Reports this month showed that sales of new and previously owned homes continued to decline in April. Applications for loans to buy a home are also declining.

“House price gains are going to be much more modest than here,” said Matthew Boynton, chief real estate economist at Capital Economics in New York. “We expect annual growth to slow to zero by mid-2023.”

(Reporting by Lucia Moticani) Editing by Andrea Ricci

Our criteria: Thomson Reuters Trust Principles.

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