PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Waning Consumer Confidence

By at 28 February, 2024, 10:30 am

by Raymond J. Keating –

According to the latest reading from The Conference Board, consumer confidence declined in February.

Specifically, the Consumer Confidence Index “fell in February to 106.7 (1985=100), down from a revised 110.9 in January.”

But most striking has been an ongoing (since mid-2021) difference between the Present Situation Index – which measures “consumers’ assessment of current business and labor market conditions – and the Expectations Index – a gauge of “consumers’ short-term outlook for income, business, and labor market conditions.”  The Present Situation Index declined to 147.2 in February from 154.9 in January, and the Expectations Index “slipped to 79.8 (1985=100), down from a revised 81.5 in January.”

Regarding the Expectations Index, it was noted that a “reading below 80 often signals recession ahead.” Therefore, the 79.8 number in February is troubling. And Dana Peterson, chief economist at The Conference Board, noted, “The decline in consumer confidence in February interrupted a three-month rise, reflecting persistent uncertainty about the US economy. The drop in confidence was broad-based, affecting all income groups except households earning less than $15,000 and those earning more than $125,000. Confidence deteriorated for consumers under the age of 35 and those 55 and over, whereas it improved slightly for those aged 35 to 54.”

But as I’ve noted before, a difference can occur between what consumers say and what they actually do, as well as between their expectations and what turns out to be the case. Consider the following chart from The Conference Board of consumer expectations regarding a recession.

 

Thankfully, the recession that consumers have been expecting for some time now hasn’t materialized. Of course, that doesn’t mean that it won’t. But it does mean that consumer confidence is only one variable or consideration when looking at where the economy might be headed.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.

 

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