More Pessimistic Outlook Lowers US Consumer Confidence

Despite the near-term strength of the labor market, consumer confidence in the US unexpectedly declined in February, as rising prices and deepening concerns about the future outweighed the strength of the labor market in the near term.

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There was a drop in the Conference Board's index from a reading of 106 in January to 102.9 on Tuesday, data released by the organization showed. Based on the median forecast of economists surveyed by Trade Algo, the gauge is expected to rise to 108.5 by the end of the year.

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There was a decrease in expectations - which reflects consumers' six-month outlook - to 69.7, the lowest since July, while the group's measurement of current conditions rose to 152.8, the highest since July. The decline in confidence is a result of more pessimistic views about the future employment situation, income levels, and business conditions over the next six months. The Federal Reserve is expected to raise interest rates in order to combat the rising price of goods and services. The inflation is proving to be stickier than many expected. In addition to the higher prices eroding America's purchasing power, the aggressive Fed policy is also putting the economy at risk of sliding into recession as a result of higher prices.

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However, it should be noted that layoffs so far have mostly been concentrated in the finance and technology sectors, and the unemployment rate throughout the economy has fallen back to a 53-year low. Consumers who said there were "plentiful" jobs in the economy surged to 52%, the highest share since April. There are those who say that it is hard to get a job.

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Even though consumer spending has rebounded at the start of this year, there are still some tentative signs for the future. According to the report, American consumers have scaled back their plans to buy major appliances, homes, and cars in February, and their vacation intentions have also declined.

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“It appears that some consumers are showing early signs of pulling back on their spending in the face of high prices and rising interest rates”, said Ataman Ozyildirim, senior director of economics at the Conference Board.

What Trade Algo Economics Says...

“The consumer has become considerably less confident about the future, which bodes poorly for consumer spending once there is a weakening in the labor market. The Expectations Index has fallen far below 80 in the last year, a level that often signals the beginning of a recession within the next year, as the report indicates.” — Eliza Winger, Economist

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According to recent earnings calls, executives seem to be unable to come to an agreement when it comes to how they describe the health of consumers. Strong consumer demand continues to be seen across the globe, according to Live Nation Entertainment Inc. CEO Michael Rapino. 

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While Molson Coors Beverage Co. emphasized the uncertainty of the consumer landscape, retailer TJX Cos. Inc. CEO Ernie Herrman pointed to a shift toward value. Despite a decline in the median inflation rate expected over the next 12 months, data released last week showed an acceleration in the Fed's preferred inflation metrics, another indicator of stubborn price pressures, which they expect to continue for some time to come.

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