Recession fears pull down consumer confidence to 9-month low

U.S. consumer confidence fell to a nine-month low in April amid worries about the future, according to the consumer confidence survey carried out by the Conference Board. The Conference Board Consumer Confidence Index® fell to 101.3, the lowest since July 2022, from 104.0 in March 2023.

The drop assumes significance as it reflects a worsening of expectations for consumers under 55 years and households earning $50,000 and over annually, indicating that the concerns are broader, and not limited to low-income families only.

Though the overall assessment of present conditions improved, there is pessimism around the short-term outlook. Ataman Ozyildirim, Senior Director, Economics at The Conference Board, said, “While consumers’ relatively favorable assessment of the current business environment improved somewhat in April, their expectations fell and remain below the level which often signals a recession looming in the short-term.”

Consumers were positive about the current labor market. 48.4% of consumers said jobs were “plentiful,” up slightly from 47.9%, compared to 11.1% of consumers saying jobs were “hard to get,” down slightly from 11.4% in March.

However, they were quite pessimistic about the outlook for overall business conditions, as well as labor markets in the near future fearing more layoffs and job cuts. Compared to March, fewer households expect business conditions to get better in the near future, and express fear that conditions could worsen in the next six months. They also expressed worries about fewer jobs being available in the near future.

The risk of a possible recession stems from the collapse of two regional U.S. banks in March, which has led to the tightening of credit conditions. 

Future purchase plans weaken and vacations are avoided

Consumers have stayed away from buying homes, vehicles, or appliances and have shied away from planning vacations, indicating their plans to save amid a pessimistic environment. The share of those planning to buy household appliances over the next six months dropped to 41% from 44.8% in March. This reflects the smallest share since September 2011.

However, according to some economists, the drop in buying plans could be an impact of other factors too, and not necessarily reflect pessimism about the economic conditions. Similarly, staying away from vacations could be because of much longer wait times for passport application processing and airline ticket bookings. 

But current home sales have risen

If we look at current data from other sources such as mortgage finance agency Freddie Mac, The S&P CoreLogic Case-Shiller national home price index, and a recently released report from the U.S. Commerce Department, there has been a rise in new home sales indicating that the housing market has been stabilizing at lower levels. 

According to the report from the Commerce Department, new home sales rose by 9.6% to a seasonally adjusted annual rate of 683,000 units in March 2023, registering the highest level since March 2022. Opportunistic buyers have been capitalizing on any dip in mortgage rates to buy homes.

Outlook

Consumer confidence in the short-term future outlook has hit a 9-month low on fears of impending recession triggered by two regional U.S. banks in March. While consumers view the current business conditions favorably, the recent banking crisis has made them pessimistic about the near future. Accordingly, they are looking to save money by postponing any big purchase plans (vehicle, home appliances, or house) and shying away from spending on vacation.