Financial basis

Inflation undermines US consumer confidence; real estate prices remain high

  • Consumer confidence index drops 4.5 points to 98.7 in June
  • Merchandise trade deficit narrows 2.2% to $104.3 billion in May
  • Exports increase by 1.2%; imports fall by 0.1%
  • Wholesalers’ inventories increase by 2.0; retail inventories up 1.1%
  • House prices rise in April, but the pace is slowing

WASHINGTON, June 28 (Reuters) – U.S. consumer confidence fell to a 16-month low in June as concerns over high inflation left consumers pricing in a significant slowdown in the economy or even a recession in the second semester.

Despite the bleak outlook, consumers showed few signs of cutting back on spending, with plans to buy motor vehicles and other big-ticket items like refrigerators and washing machines rising, the Conference survey showed on Tuesday. Board. But fewer consumers than in April intended to vacation at home or abroad, reflecting record gasoline prices and high air fares.

The economy is on recession watch as the Federal Reserve aggressively tightens monetary policy to fight inflation. For now, it continues to grow, with further data released on Tuesday showing the merchandise trade deficit narrowed significantly again in May as exports hit a record high.

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“Right now, we are at an inflection point in the economy, where real spending and economic activity are still positive, however, consumer confidence and financial conditions, particularly interest rates, point to a slowdown ahead,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.

The Conference Board’s consumer confidence index fell 4.5 points to 98.7 this month, the lowest since February 2021. Consumers’ assessment of current business and labor market conditions has changed little. But their near-term outlook for earnings, business and labor market conditions was the weakest since March 2013, which the Conference Board said “suggests weaker growth in the second half of 2022 as well as downside risk.” recession by the end of the year”.

Consumer fears of a recession could become self-fulfilling. The University of Michigan survey last week showed consumer confidence fell to a record low in June.

The Conference Board survey places greater emphasis on the labor market, which remains tight, but consumers are feeling the effects of inflation. National gasoline prices averaged just above $5 a gallon for most of June, before falling back to around $4.88 a gallon on Tuesday, according to AAA data.

“Consumers hate inflation and it’s depressing consumer confidence through the expectations channel, even though households see labor market conditions as strong,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York. .

The Conference Board survey’s so-called labor market differential, derived from data on respondents’ opinions about whether jobs are plentiful or hard to get, rose to 39.7 from 39.5 in May. This measure is correlated to the Department of Labor’s unemployment rate.

There were 11.4 million job vacancies at the end of April, with almost 2 vacancies for every unemployed person.

Stocks on Wall Street were mostly down. The dollar appreciated against a basket of currencies. US Treasury prices fell.

JUMP IN INFLATION EXPECTATIONS

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

The Fed raised its key rate this month by three-quarters of a percentage point, its largest hike since 1994. The US central bank has raised its key overnight rate by 150 basis points since March.

Consumers still intend to continue spending on goods even though they are worried about inflation. The share of consumers planning to buy a motor vehicle in the next six months has increased. More consumers planned to buy major appliances, including clothes dryers and vacuum cleaners.

But the holidays are off the cards for many, which could slow consumer spending and economic growth in the second half.

Home buying plans have remained unchanged as borrowing costs rise further and home prices remain high amid a shortage of entry-level homes.

A separate report on Tuesday showed the S&P CoreLogic Case-Shiller National Home Price Index rose 20.4% on an annual basis in April after hitting a record 20.6% in March. Strong price increases were recorded in Tampa, Miami and Phoenix.

Signs that house price inflation has likely peaked have been bolstered by a third report from the Federal Housing Finance Agency showing house prices rose 18.8% over the 12-month period. until April, after an acceleration of 19.1% in March.

Nevertheless, the economy is doing well. A fourth report from the Commerce Department showed the merchandise trade deficit narrowed 2.2% to $104.3 billion in May, suggesting trade could contribute to economic growth this quarter for the first times in almost two years. Read more

A record trade deficit weighed on the economy in the first quarter, causing gross domestic product to decline at an annualized rate of 1.5%. Trade has subtracted from GDP for seven consecutive quarters. Growth estimates for the second quarter range from as low as 0.3% to as high as 2.9%.

Wholesale inventories rose 2.0% in May, while retail inventories rose 1.1%.

“Exports and inventories continue to rise in May at least, which means that the clouds of the offshore recession will have to remain on the horizon for another month,” said Christopher Rupkey, chief economist at FWDBONDS at New York.

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Reporting by Lucia Mutikani; Editing by Paul Simao and Chizu Nomiyama

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