What Happened to Consumer Confidence? | Episode 70 | 11-10-23

A concern that many Americans may be grappling with is how our household incomes can keep pace with inflation—A question that was reflected in the recent University of Michigan Consumer Sentiment Index. The index reported a slip in consumer confidence, marking a concerning trend that Megan Horneman discusses in detail. She explains the implications of this decline, including the unsettling sentiment that now may not be the best time to make a major purchase, like a house or big-ticket household items.

The recent Consumer Confidence report included high-interest rates on loans - from credit cards to mortgages and auto loans. These interest rates are shaping consumer sentiment and the rising inflation expectations--highest since 2011--might just be the red flag for the Federal Reserve. The Fed intends to keep interest rates elevated for an extended period. How might climbing inflation expectations impact their decisions in the upcoming December meeting?

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming to you today with our regular segment of Markets with Megan, and we're rounding out this week with a pretty disappointing report on consumer confidence. This is consumer confidence as reported by the University of Michigan Consumer Sentiment Index and it is consumer confidence for the beginning of November, so we will get a final reading at the end of the month. So what this shows is that consumer sentiment, not only in the current conditions but also future expectations, declined. Current conditions can decline the most. Some of the other details within the report are sentiment that the individual's household income will beat inflation over the next couple of years. That's near a 10-year low. When you look at those consumers that were surveyed, those that are saying it's a good time to buy a house that's near the lowest we've seen since the early 1980s and then also whether it's a good time to buy a major household item or an automobile, these are also declining as well. This isn't surprising because interest rates are very high across the board for loans, whether it's credit card loans, whether it's mortgage rates, whether it's auto loans. This is concerning from the consumer standpoint. It's starting to be felt.

But the main takeaway from this report is. The University of Michigan also surveys inflation expectations. This is going to get the Federal Reserve's attention because inflation expectations for the longer term the next five to 10 years they actually rose to the highest level since 2011. The Fed's not going to like that. Yesterday, the Fed was vocal about keeping interest rates higher for longer and that they may have to even raise rates again. So this is something they're going to be paying attention to and may impact what they do at their December meeting. That's all we have today. If you have any questions or comments, please feel free to reach out to podcast at verdence dot com. Thank you.