Peter Boockvar

The initial February UoM consumer confidence index 1.5 pts m/o/m to 66.4 and that was above the estimate of 65. All of the gain was driven by the Current Conditions component which was up by 4.2 pts while Expectations fell .4 pts. One year inflation expectations rebounded by 3 tenths to 4.2% after 3 months of declines m/o/m and compares with 4.4% in December. The 20 yr average is 3.2% and the 20 yrs leading into Covid it averaged 2.9%. Longer term inflation expectations were unchanged at 2.9%.

After falling to the lowest level since 2011 in December, the employment component rose 4 pts in January and fell back by 2 pts in February. This subdued view is in stark contrast to last Friday’s payroll report. Positively for the consumer, the income component improved by 3 pts m/o/m and is matching the best level since May 2022. Again, while wage growth is plateauing, the pace is still very good compared to pre-Covid trends but it still is playing catch up to the sharp rise in the cost of living over the past few years. Thanks to the higher income expectations, there was a lift in the mean % of those expecting income to beat inflation in the coming 5 years to 38% from 36.9% in the month prior and off the recent lows of 33.8% in October.

Thanks to the recent drop in mortgage rates (though ticking back up again over the past week), those that said it’s a good time to buy a home jumped 9 pts to 53 and that is the most since last April. There was a 2 pt fall in vehicle purchase intentions while there was a 3 pt gain for major household items.

As for the bottom line, I’ll defer here to the UoM, “Overall, high prices continue to weigh on consumers despite the recent moderation in inflation, and sentiment remains more than 22% below its historical average since 1978. Combined with concerns over rising unemployment on the horizon, consumers are poised to exercise greater caution with their spending in the months ahead.” The higher stock and bond markets in January helped at least a segment of the citizenry, “Rising asset values supported gains in sentiment for some parts of the population. Consumers with large stock holdings reported higher sentiment this month, particularly in how they currently assess their personal finances. In contrast, the recent news of the layoffs in the tech sector contributed to some declines in sentiment for consumers in the West region, with little effect in other parts of the country.”

So, this comment on markets helping confidence for some gets to the ‘financial conditions’ discussion as the looser they get, the tougher it is to quell inflation.

I’ll add this too, while the Fed and markets live in a rate of change world when reacting to economic data, consumers live in an absolute world and the absolute cost of living is up by 16% since December 2019 as measured by CPI. Average hourly earnings are also higher by 16% since December 2019 so there has been a lot of running to stand still, albeit better than falling behind.

UoM Consumer Confidence

One yr Inflation Expectations

Employment Expectations