In yet another sign that the US economy is poised to decelerate after what economists believe was a solid showing in the third quarter, consumer confidence slipped in October to a three-month low.
At 102.5, the headline print on the Conference Board’s gauge was well below consensus. Forecasters expected 105.9.
The range of estimates, from more than five-dozen economists, was 102 to 110. So, the actual print nearly matched the most pessimistic guess. It was the first decline in three months (figure below).
When taken in conjunction with lackluster PMIs released on Monday, it appears Q4 is off to an inauspicious start.
The Present Situation gauge tumbled some 12 points from September, while the Expectations index was only slightly lower. It’s fair to suggest the apparent deterioration in Americans’ assessment of current business and labor market conditions could have ramifications for the midterms, although I doubt you’ll see anybody loitering at the polls waving around poster-sized charts of Conference Board component indexes.
Lynn Franco was direct. “Consumers’ expectations regarding the short-term outlook remained dismal,” she despaired, in a press release, noting that current levels on the Expectations index have historically been “associated with recession.”
Unsurprisingly, inflation worries “picked up again” in October, after abating over the summer as gas prices fell. Nevertheless (and perhaps underscoring the message from corporate America which, according to early results from Q3 reporting season, is having some success passing along higher input costs), buying intentions for homes, cars and big-ticket items held up this month, according to Franco.
Notably, the color accompanying the release echoed a warning from Morgan Stanley’s Mike Wilson, who on Monday wrote that although capitulation on forward earnings estimates may be pushed out again, the reckoning could happen in December “when holiday demand fails to materialize or during Q4 earnings season in January/February when companies are forced to discuss their outlooks for 2023.”
Writing Tuesday, Franco said that persistent inflationary pressures will likely be a headwind for consumers into the holiday shopping season. When you consider that with the inventory overhang bedeviling many of the country’s largest retailers, demand shortfalls “may result in steep discounting which would reduce profit margins,” Franco cautioned.
Also notable: The spread between jobs plentiful and jobs hard to get fell to the lowest since April of 2021.
There’s a silver lining, though. “Combined with the drop in house prices reported earlier today” the drop in the labor differential “supports hope that the Fed is going to tone down its rhetoric (and action) fairly shortly,” Bloomberg’s Cameron Crise said. “That’s the sort of thing that boosts financial assets — at least until and unless equities and credit realize that it might be too late to forestall an economic contraction.”
