Analysis
Consumer Confidence Jumped to 91.7, Far Above Forecasts
The Conference Board's consumer confidence index rose 7.5 points to 91.7 in October, its highest since June and above every forecast in Bloomberg's survey. Easing gasoline prices lifted it, while expected inflation over the next year stayed high at 5.8%.
American consumers sounded more cheerful in October than any economist expected. The Conference Board's index rose to 91.7 from an upwardly revised 84.2 in September, the first increase in four months and the highest reading since June, the board said on Tuesday, October 27. The median forecast was about 81, and Bloomberg reported that the result topped every estimate in its survey. The Present Situation Index rose 8.6 points to 120.4 and the Expectations Index 6.9 points to 72.6, its first gain after three monthly declines.
The labour market questions improved too. The share of consumers saying jobs are plentiful rose to 26.7% from 24.3%, while the share saying they are hard to get was unchanged at 21.4%, so the gap between the two, which economists watch as an early read on unemployment, widened to 5.3 points. Fewer people expected business conditions to worsen over the next six months, 20.7% against 25.2%, and fewer expected their income to fall. The board's Fergus McCormick linked the rebound to retail gasoline prices, which eased from September to October.
The detail that matters for the Fed points the other way. Consumers expect prices to rise 5.8% over the next twelve months; that was lower than in September, but it is still far above the Fed's 2% target. Plans to buy cars, homes and electronics slipped on a six-month average, and 43.3% of households plan a vacation in the next six months, down from 44.2%. People feel better about jobs and still expect to pay more for most things, which makes them more willing to talk about spending than to commit to big purchases.
The result also sits oddly next to the University of Michigan's survey, whose final October sentiment index was 48.0, with one-year inflation expectations at 4.7%, the highest since May. The two surveys ask different questions: the Conference Board leans on jobs and business conditions, Michigan on personal finances and prices. When inflation is the main worry and jobs are still available, Michigan tends to look gloomier, and October was a clear example of that split.
Markets barely reacted, because the Fed's decision on Wednesday was already priced: prediction markets put a hold at about 93% and a December hike at around 73%. The two-year Treasury yield rose about two basis points to 4.74%, while durable goods orders, up 1.8% in September, and new home sales of 676,000 also came in above forecasts. For a committee leaning towards a December hike, a confident consumer with high inflation expectations is one more reason not to sound relaxed on Wednesday afternoon.