Economic Report: Consumer confidence slips at start of 2023 as U.S. recession worries grow
The numbers: A survey of consumer confidence slipped in January to 107.1, reflecting growing worries about a potential recession as rising interest rates and high inflation degrade the U.S. economy.
The closely followed index fell almost 2 points from 109 in December, the nonprofit Conference Board said Tuesday.
Economists polled by The Wall Street Journal forecast the index to rise to 109.5.
While the index had hit an 11-month high at the end of 2022, it’s well below the levels associated with a healthy economy. Consumer confidence tends to signal whether the economy is getting better or worse.
Key details: A measure of how consumers feel about the economy right now rose to 150.9 in January from in 147.4 in December. That’s the highest level in nine months, reflecting a resurgent stock market, falling gas prices and easing inflation.
Yet a similar confidence gauge that looks ahead six months dropped to 77.8 from 83.4.
A reading below 80 often signals a recession within the next year, the board said, but the expectations index has hovered below that level in every month except for one since March 2022.
Inflation expectations were little changed. Americans expect prices to rise 6.8% in the next 12 months, down from a high of 7.9% last summer.
Fewer people plan to buy a new home with mortgage rates so high, but plans to buy new cars or appliances were unchanged.
Big picture: The economy has slowed in response to higher interest rates orchestrated by the Federal Reserve to try to quench inflation. Higher borrowing costs depress consumer and business spending.
The U.S. could sink into a recession if the economy gets even weaker. Even so, the Federal Reserve is prepared to raise interest rates again on Wednesday as it aims to ensure that inflation is brought back under control.
The rate of inflation has slowed to 6.5% from a 40-year peak of 9.1%, but it’s still more than triple the Fed’s 2% goal. Senior Fed officials say persistently high inflation is more damaging to the economy in the long run than a temporary slowdown or decline in growth.
Looking ahead: The survey reflects “waning confidence in the state of the economy in 2023,” said senior economist Ben Ayers of Nationwide. “We project that a moderate recession will take hold by mid-year.”
Market reaction: The Dow Jones Industrial Average
and S&P 500
rose slightly in Tuesday trades.