The December Conference Board’s consumer confidence index rose to 108.3 from 101.4 and that was 7.3 pts above the consensus forecast. Both the Present Situation and Expectations components were higher m/o/m. One yr inflation expectations fell 4 tenths m/o/m to 6.7% and that is the lowest since September 2021 “with recent declines in gas prices a major impetus,” said the Conference Board. For perspective, the 10 yr average is 5.4%.
The answers to the labor market questions helped to lift confidence, along with the reduction in inflation expectations. After weakness seen in the past two months, those that said jobs were Plentiful rose and those that said they are Hard to Get fell. Looking out 6 months, a higher number see ‘more jobs’ but only after the November drop. Income expectations moderated to a 4 month low.
Spending intentions were mixed. They rose a hair for those looking to buy an automobile but fell for those looking to buy a home (though off the July low when mortgage rates hit its highs). Those that have plans to buy a major appliance fell to a 5 month low. Positively, those that plan a vacation in the coming 6 months rose to the best since February 2020 but at 46.2 is still well below that 54.9 print back then as the Conference Board believes “this shift in consumers’ preference from big-ticket items to services will continue in 2023.”
Bottom line, at 108.3, it is approximately the 50% retracement of the confidence drop from February 2020 to the bottom in April 2020. But, with the Expectations component “still lingering around 80”, the Conference Board said this is “a level associated with recession.” Higher inflation, albeit at a slowing trend, and interest rate hikes, will remain the 2023 headwinds for the consumer.
Consumer Confidence
One yr Inflation Expectations
Existing home sales in November totaled 4.09mm, about 100k under the estimate and down from 4.43mm in October. If we don’t include the immediate months after the spring 2020 shutdown, this is the least number of home transactions since November 2010 right after you know what.
The median home price moderated to just 3.5%, the slowest pace since June 2020 and April 2019 prior to that. That however is a very good thing for the first time buyer as it could ease some of the pain of a 6%+ mortgage rate. That first time buyer made up just 28% of purchases for a 2nd month and near the lows of 26%. Months’ supply held at a still muted 3.3 and Days on the Market totaled 24 vs 21 in October, 19 in September, 16 in August and 14 in July.
The NAR referred to the home purchase market in November as “frozen” but reasons we’re all too aware of, “rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes.” We’ll see in Q1 2023 whether a mortgage rate off the peak will be enough to trigger more activity but I’ll say again, I still believe the key question is how much do home prices need to fall in order to really spur more transactions if mortgage rates stay high. In some of the previously hot markets, it could possibly be 10-20%.
Existing Home Sales
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.