Inflation undermines consumer confidence in the United States. Home prices are still high

  • Consumer confidence index fell 4.5 points to 98.7 in June
  • The goods trade deficit fell 2.2 percent to $104.3 billion in May
  • Exports increased 1.2%; Imports fell 0.1%
  • High wholesale stocks 2.0; Retail stocks rose 1.1%.
  • Home prices rose in April, but the pace is slowing

WASHINGTON (Reuters) – U.S. consumer confidence fell to a 16-month low in June as concerns about high inflation left consumers expecting the economy to slow significantly or even slip into recession in the second half of the year.

Tuesday’s survey by the Conference Board showed that despite the bleak outlook, consumers showed few signs of cutting back on spending, with plans to buy cars and other big-ticket items like refrigerators and washing machines increased. But fewer consumers, compared to April, intend to travel on vacation at home or abroad, reflecting record hikes in gasoline prices and expensive airline tickets.

The economy is in recession as the Federal Reserve tightens monetary policy aggressively to counter inflation. For now, it’s continuing to grow, with further data on Tuesday showing that the goods trade deficit narrowed again significantly in May as exports hit a record high.

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said Chris Zacarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.

The Conference Board’s consumer confidence index fell 4.5 points to a reading of 98.7 this month, the lowest level since February 2021. Consumers’ assessment of current business and labor market conditions was unchanged. But their short-term forecasts for income, business and labor market conditions were the weakest since March 2013, which the Conference Board said “indicates weaker growth in the second half of 2022 as well as increased recession risks by the end of the year.”

Consumer fears of recession can come true. A University of Michigan survey last week showed that consumer confidence fell to a record low in June.

The Conference Board’s survey focuses more on the labor market, which remains tight, but consumers are feeling the pain of inflation. National gasoline prices averaged just above $5 a gallon for most of June, before easing back to about $4.88 a gallon as of Tuesday, according to data from AAA.

“Consumers hate inflation and this weakens consumer confidence across the outlook channel even as households see strong labor market conditions,” said Conrad de Cuadros, chief economic adviser at Brian Capital in New York.

The so-called labor market differential by the Conference Board survey, which derives from respondents’ opinions data on whether jobs are plentiful or hard to come by, rose to 39.7 from a reading of 39.5 in May. This metric is related to the unemployment rate from the Department of Labor.

There were 11.4 million jobs at the end of April, with nearly 2 for every unemployed person.

Stocks on Wall Street were mostly lower. The dollar rose against a basket of currencies. US Treasury bond prices fell.

Inflation expectations jump

Consumer inflation expectations over the next 12 months jumped to a record high of 8.0% from 7.5% in May.

The Federal Reserve this month raised its policy rate by three-quarters of a percentage point, its largest rise since 1994. The US central bank has increased its policy rate by 150 basis points since March.

Consumers still intend to continue spending on goods even when they are concerned about inflation. The percentage of consumers who are planning to buy a car over the next six months has increased. More consumers plan to purchase major household appliances, including dryers and vacuum cleaners.

But the holiday is off the table for many, which could slow consumer spending and economic growth in the second half.

Home buying plans have not changed as borrowing costs increase and home prices remain high amid a shortage of entry-level homes.

A separate report on Tuesday showed that the S&P CoreLogic Case-Shiller National Home Price Index rose 20.4% year-on-year in April after a record high of 20.6% in March. Significant price gains were recorded in Tampa, Miami and Phoenix.

Signs that home price inflation may have peaked were boosted by a third report from the Federal Housing Finance Agency showing home prices rising 18.8% in the 12 months to April after accelerating 19.1% in March.

However, the economy is moving forward. A fourth report from the Commerce Department showed that the goods trade deficit shrank 2.2% to $104.3 billion in May, indicating that trade could contribute to economic growth this quarter for the first time in nearly two years. Read more

A record trade deficit weighed on the economy in the first quarter, sending GDP down at an average rate of 1.5% annually. Trade has been subtracted from GDP for seven consecutive quarters. Growth estimates for the second quarter range from a low of 0.3% to a high of 2.9%.

Wholesale inventories rose 2.0% in May, while retailer inventories jumped 1.1%.

“Exports and inventories are still rising at least in May, which means that recession drags abroad should remain in sight for another month,” said Christopher Robke, chief economist at FWDBONDS in New York.

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(Reporting by Lucia Mutikani) Editing by Paul Simao and Chizu Nomiyama

Our Standards: Thomson Reuters Trust Principles.

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