Inflation concerns present but impact on CB sentiment index “muted”

Summary: Conference Board Consumer Confidence Index rises in October; reading above expected figure; views of present conditions, short-term outlook both improve; impact of short term inflation concerns on confidence “muted”; signs consumer spending to support growth through final months of 2021.

After the GFC in 2008/09, US consumer confidence clawed its way back to neutral over a number of years and then went from strength to strength until late 2018. Measures of consumer confidence then oscillated within a fairly narrow band at historically high levels until they plunged in early 2020. Subsequent readings then fluctuated around the long-term average until March this year when they reached elevated levels.

The latest Conference Board survey held during the first three weeks of October indicated US consumer confidence has improved. October’s Consumer Confidence Index registered 113.8 on a preliminary basis, a reading which is above the median consensus figure of 109.5 as well as September’s final figure of 109.8.

Consumers’ views of present conditions and their outlook for the near-future both improved. The Present Situation Index rose from a revised figure of 144.3 to 147.4 while the Expectations Index increased from a revised figure of 86.7 to 91.3.

“While short-term inflation concerns rose to a 13-year high, the impact on confidence was muted,” said Lynn Franco, a senior director at The Conference Board.

Long-term US Treasury bond yields declined moderately. By the close of business, the 10-year Treasury bond yield had lost 2bps to 1.61% and the 30-year yield had shed 4bps to 2.04%. The 2-year yield finished 1bp higher at 0.45%.

In terms of US Fed policy, expectations of a rise in the federal funds rate over the next 12 months remained almost unchanged. Federal funds futures contracts for October 2022 implied an effective federal funds rate of 0.41%, about 33bps above the current spot rate.

Franco noted a higher proportion of respondents planned to purchase homes, cars and large appliances and he took this as “a sign that consumer spending will continue to support economic growth through the final months of 2021.” Additionally, nearly half intend to take a vacation in the next six months, “a reflection of the ongoing resurgence in consumers’ willingness to travel and spend on in-person services.”

The Consumer Confidence Survey is one of two monthly US consumer sentiment surveys which result in the construction of an index. The Conference Board’s index is based on perceptions of current business and employment conditions, as well as respondents’ expectations of conditions six months in the future. The other survey, conducted by the University of Michigan, is similar and it is used to produce an Index of Consumer Sentiment. That survey differs in that it also includes some longer-term questions.

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