January 31, 2023

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The Conference Board reported that consumer confidence fell 1.9 points in January to 107.1 after having jumped  7.6 points in December.

Senior Director of Economic Indicators at the Conference Board, Lynn Franco, said, The Conference Board Consumer Confidence Index® decreased in January following an upwardly revised increase in December 2022. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—increased to 150.9 (1985=100) from 147.4 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell to 77.8 (1985=100) from 83.4 partially reversing its December gain. The Expectations Index is below 80 which often signals a recession within the next year. Both present situation and expectations indexes were revised up slightly in December.”  He added that, “Consumer confidence fell the most for households earning less than $15,000 and for households aged under 35.”

We are not as pessimistic as the consumer confidence data would suggest.  Rather, we envision moderate economic growth in the months ahead.   The economy keeps cranking out new jobs which are showing few signs of slowing down — thus far.  Wages are growing steadily which is boosting consumer income.   The Fed boosted the funds rate to 4.4%, The core CPI rose 5.7% in 2022.  Thus,  the real funds rate at yearend was still sharply negative at -1.3% and, therefore, will continue to stimulate the economy.  The bottom line is that the economy is likely to grow at a moderate rate in 2023.  We expect 1.2% growth in 2023.

It is also worth noting that both consumer confidence and consumer sentiment have fallen sharply in recent months.  Given the magnitude of the declines one might have expected a sharp pullback in consumer spending.  But that has not happened.  Instead, consumer spending has risen at a 2.2% pace in the past year.  While they say they are worried, consumers still have a job with little chance of losing it any time soon, and their balance sheets are the best they have been since the 1980’s,

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