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The U.S. economy grew at its fastest pace in nearly two years last quarter on a surge in consumer spending that will be tested in the coming months.
New York CNN –
Americans are losing confidence in the economic outlook.
For the third month in a row, the Conference Board’s consumer confidence index fell – falling from an upward trend to 102.6 in October revised 104.3 in September. According to the Conference Board, the index is at its second lowest level this year, just above May’s reading of 102.5.
The October decline came as “consumers remained preoccupied with rising prices in general and food and gasoline prices in particular,” Dana Peterson, chief economist at the Conference Board, said in a statement Tuesday. “Consumers also expressed concerns about the political situation and higher interest rates,” she said, adding that the war between Israel and Hamas also influenced consumers’ views on the economy.
But the tentative agreements the three major automakers reached last week with the United Auto Workers, aimed at ending the longest auto strike in 25 years, will likely boost consumer confidence heading into the next release, said Bill Adams, chief economist at the United Auto Workers Comerica Bank.
The decline in consumer confidence was not evident across all age groups and household income levels. Consumers under 35 were slightly more optimistic about the economic situation this month than last month. The monthly decline in consumer confidence was greatest among those aged 55 and over.
Meanwhile, consumers with household incomes between $25,000 and $35,000 saw the biggest decline in confidence in the economy last month. In contrast, consumers with household incomes between $100,000 and $125,000 saw the biggest jump in confidence last month.
The business organization’s “expectations index” remained below 80 for the second month in a row, falling slightly further to 75.6 in October after being revised upwards at 76.4 in September. This reflects “a decline in confidence in future business conditions, job availability and incomes,” Peterson said.
Despite the remarkable third-quarter gross domestic product report that showed the economy grew at an annual rate of nearly 5% as consumer spending remained robust despite high interest rates, Americans are not ruling out a recession.
“More than two-thirds of consumers still said a recession was ‘somewhat’ or ‘very likely’ in October,” Peterson noted. The prospect of a recession is causing some consumers to reconsider large purchases such as homes, she said.
At the same time, home prices and mortgage rates are rising, with the average 30-year fixed-rate mortgage at nearly 8%.
Although the report suggests consumers are “a little more nervous about the future,” they are “standing up to the headwinds,” said Jeffrey Roach, chief economist at LPL Financial.
The new data comes as Federal Reserve officials opened their two-day policy meeting. The central bank is widely expected to announce on Wednesday that it will keep interest rates steady amid the rise in U.S. bond yields.