Consumer confidence drops to lowest level since July 2022

REAL ECONOMY BLOG | April 25, 2023

Authored by RSM US LLP

Consumer confidence in April dipped to the lowest level since last July, driven by the deterioration in economic expectations as recession concerns mount.

The top-line confidence index in April fell to 101.3 from 104.0 in March, while the expectations index dropped sharply to 68.1 from 74.0, according to data from the Conference Board released on Tuesday.

Some of the decline was most likely a result of the recent banking turmoil that worsened American consumers’ confidence in the economy for the next six to 12 months.

Spending plans for the next six months fell in all categories: automobiles, housing, major appliances and vacations, according to the data.

If the decline persists—which we think is highly likely—there will be a significant hit to overall spending, large enough to bring the economy toward a recession in the second half of the year.

Tuesday’s data should add to the recent data that has prompted us to increase our recession forecast to a 75% likelihood over the next 12 months, up from 65%.

The labor market remained strong, according to the report, as the labor differential index—which measures the percentage difference between responses for jobs plentiful and for jobs hard to get—increased slightly to 37.3 from 36.5.

While that is a step down from its pandemic high, the labor differential remained above the 2019 average, suggesting another solid month of job gains and a low unemployment rate in April.

Inflation expectations ticked down slightly as the median inflation over the next 12 months dropped to 5.3% from 5.5% in the prior month.

While it has been clear that concerns have begun to shift from high inflation to recession, the inflation rate, which remains above the Federal Reserve’s 2% target, will most likely stay with us for another year despite the likelihood of a recession.