October 29, 2024

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The Conference Board reported that consumer confidence rose 9.5 points in October to 108.7 after falling 6.4 points in September.

Chief Economist at the Conference Board, Dana Peterson, said “Consumer confidence recorded the strongest monthly gain since March 2021, but still did not break free of the narrow range that has prevailed over the past two years.  In October’s reading, all five components of the Index improved. Consumers’ assessments of current business conditions turned positive. Views on the current availability of jobs rebounded after several months of weakness, potentially reflecting better labor market data. Compared to last month, consumers were substantially more optimistic about future business conditions and remained positive about future income. Also, for the first time since July 2023, they showed some cautious optimism about future job availability.

Given the slightly higher level of consumer confidence we envision moderate economic growth in the months ahead.   The economy keeps cranking out new jobs although the pace of job creation is slowing down a bit.  With the funds rate at 4.8% and the core CPI at 3.2% the real funds rate is +1.6% which is higher than the 0.8% real funds rate that the Fed believes is “neutral”.

Given the magnitude of the earlier declines in confidence one might have expected a sharp pullback in consumer spending.  But that has not happened.  Instead, real consumer spending has risen 2.9% in the past year and at a 2.6% pace  in the most recent 3-month period..  Consumers had been relying heavily on credit card borrowing to sustain their peace of spending.  But right now with real disposable income rising 3.1% and real spending rising 2.9%, the consumer can continue to spend at the current pace forever..   GDP roses 2.8% in the third quarter and we expect it to grow 2.5% in the fourth quarter. .

The Fed has begun its long-awaited easing process.  The current 4.8% funds rate should decline to 4.3% by the end of this year and to 3.3% by the end of 2025.  That should reduce mortgage rates from 6.5% currently to 5.2% by the end of 2025.  All of that should tend to boost the pace of economic activity.

Confidence data reported by the Conference Board are roughly matched by the University of Michigan’s series on consumer sentiment.   As shown in the chart below, trends in the two series are identical but there can be month-to-month deviations.

Stephen Slifer

NumberNomics

Charleston, SC