U.S. consumer confidence has hit its lowest since July 2022, sparking recession concerns as heightened prices lead to more savings and less spending.
The Conference Board reported that its Consumer Confidence Index fell for the third consecutive month in April, reaching its lowest level since July 2022. The Present Situation Index, which gauges current business and labor market conditions, also saw a decline. More notably, the Expectations Index, which forecasts consumers' short-term outlook for income, business, and labor market conditions, dropped to 66.4—a level often associated with recessionary risks.
Dana M. Peterson, the chief economist at The Conference Board, expressed concern, stating, “Confidence retreated further in April, reaching its lowest level since July 2022.”
The decrease in confidence spanned across almost all income groups, with significant drops reported among households earning less than $25,000 and those earning more than $75,000. All age groups experienced a fall in confidence, though those under 35 remained more optimistic than their older counterparts.
Peterson also noted that "Elevated price levels, especially for food and gas, dominated consumer’s concerns." Despite stable average 12-month inflation expectations at 5.3 percent, the perceived likelihood of a US recession over the next 12 months has increased slightly since April.
The American public also expressed less optimism about their family’s financial future and anticipated higher interest rates over the next year. Consumer plans to purchase homes and major appliances, which are sensitive to interest rates, have softened, and vacation plans have dropped to the lowest level since June 2023.
In efforts to save money, consumers prioritized cutting discretionary spending, such as clothing, dining out, vacations, and entertainment, over essential services like education, childcare, and healthcare.
A Gallup poll echoed these findings, with U.S. economic confidence falling in April for the first time in seven months. Only 29 percent of Americans believe that economic conditions are improving, a decline from 33 percent in March.
The U.S. economy displayed signs of deceleration in the first quarter of 2023, with a GDP growth of 1.6 percent, a slowdown from the 3.4 percent in the previous quarter. Jamie Dimon, CEO of JP Morgan Chase, warned in a shareholder letter of the risks of higher rates and recession, citing a "treacherous geopolitical era" and the uncertain effects of economic policies.
Economists have estimated a 33 percent chance of the U.S. entering a recession in the next 12 months. Scott Anderson of BMO Capital Markets and Mike Englund of Action Economics both pointed to the risks associated with restrictive monetary policy and the waning impact of prior fiscal stimulus.
While Fitch Ratings predicted a sharp global growth slowdown in 2024, it forecasted that the United States might avoid a recession. However, U.S. Bank's recent report highlighted uncertainties about the American economy's ability to sustain its momentum.
Current economic indicators and expert analyses suggest that consumer confidence in the United States has waned, with increased risks of a recession on the horizon. This development will likely continue to influence market conditions and monetary policy decisions in the coming months.
