US consumer confidence plummets; house price inflation slows further

By Lucia Mutikani

WASHINGTON, Feb 28 (Reuters) – U.S. consumer confidence fell unexpectedly in February, with the decline concentrated in lower-middle-income households, even as people were more optimistic about the job market.

The Conference Board survey released on Tuesday also showed that consumers are hesitant to buy high-value items such as cars and appliances in the next six months.

But the correlation between confidence and consumer spending has been weak. Americans held their spending steady despite worries about the future, thanks to the strength of the labor market.

“Households will likely be cautious as inflation remains elevated and borrowing costs rise,” said Rubeela Farooqi, chief economist at High Frequency Economics in White Plains, New York. “But for now they are still spending, due to strong job growth which is restoring incomes.”

The Conference Board’s consumer confidence index fell to 102.9 this month from 106.0 in January. Economists polled by Reuters had estimated a reading of 108.5. The second consecutive monthly decline mainly reflects pessimism among consumers with annual incomes between $35,000 and $50,000.

There were also declines among other income groups, with the exception of the $25,000 to $34,999 range. Confidence declined among consumers aged 35 to 54.

The overall decline in confidence contrasts with the University of Michigan confidence index, which hit its highest level in 14 months in February.

“We are more inclined to signals from the University of Michigan index, especially regarding the direction of consumer spending in the coming months, as it has always been a more reliable indicator of future trends,” said Colin Johanson, an economist at Barclays in New York.

In January, consumer spending posted the largest increase in nearly two years, fueled by wage increases. Spending is expected to hold up in the coming months as the Conference Board survey showed the share of consumers who see jobs as “abundant” has returned to levels seen in the spring of last year.

As a result, the survey’s so-called labor market spread, derived from data on respondents’ opinions of whether jobs are plentiful or hard to find, rose to 41.5, the highest in nearly one year, starting January 37. This measure is correlated with the unemployment rate from the Department of Labor. The unemployment rate of 3.4% in January was the lowest in more than 53 years.

NARROW LABOR MARKET

Tensions in the labor market and persistent inflation have fueled fears that the Federal Reserve will continue to raise interest rates throughout the summer.

The Fed is expected to make two 25 basis point rate hikes in March and May, and financial markets are betting on another hike in June. The Fed has raised its key rate by 450 basis points since last March, taking it from near zero to a range of 4.50% to 4.75%.

12-month inflation expectations fell to 6.3% from 6.7% last month. As price pressures remain strong, consumers are anticipating fewer expensive purchases and trips over the next six months.

They were also less enthusiastic about buying a home, especially with the resumption of rising mortgage rates.

Rising mortgage rates and house prices have sidelined many potential buyers. However, there are signs that housing affordability is gradually starting to improve.

The S&P CoreLogic Case Shiller National Home Price Index, which covers all nine U.S. census divisions, rose 5.8% year-on-year in December, according to a second report released on Tuesday. This is the lowest annual increase since mid-2020 and follows a 7.6% rise in November. Prices increased by 5.8% in 2022, after a record increase of 18.9% in 2021.

The slowdown in headline house price inflation was corroborated by a third report from the Federal Housing Finance Agency, which showed prices rose 6.6% in the 12 months to December. , the smallest increase since June 2020, after rising 8.2% in November. In 2022, they increased by 6.6%, after climbing by 18.0% in 2021.

While higher mortgage rates are hurting demand and slowing home price inflation, the FHFA noted that “these negative pressures have been partially offset by record high inventories.”

A fourth report from the Commerce Department showed the merchandise trade deficit widened 2.0% to $91.5 billion in January, leaving trade on track to have little to no impact. impact on GDP growth at the start of the first quarter.

A declining trade deficit was one of the factors contributing to the economy’s 2.7% annualized growth rate in the fourth quarter. The other boost to growth came from inventories.

Wholesale inventories fell 0.4% last month, after rising 0.1% in December, the Commerce Department also said. Retail inventories rose 0.3% after rising 0.4% in December.

(Reporting by Lucia Mutikani; Editing in Spanish by Manuel Farías)