Macro Morsels: Consumer Confidence Hit

What happened?

The Conference Board Consumer Confidence Index fell in February for the second month in a row. The reading that was expected by economists was 108.5, which would have been an increase from January. Instead we saw a drop to 102.9.

The Expectations Index pulled down the overall Consumer Confidence Index. Less consumers expect business conditions to improve, and more expect them to worsen. They were also less optimistic about the labor market and short-term income prospects.

Why does it matter?

Consumer activity is a leading driver of economic growth. We saw Q4 GDP growth come in at 2.7%, with inventory building the leading driver, but consumption a small fraction thereof at 0.2% of the total, seeing a less optimistic consumer could mean that economic softening may be an ongoing theme.

This prompts concerns, in particular, about how industries and sectors that do business with more vulnerable lower income consumers may fare in this end cycle environment. We may see further weakness in those that sell or lend to the bottom 40% of income earners.

In closing

With consumers showing increasing signs of stress, this reading shows that many are not seeing any improvement on the horizon. 40% of consumers are struggling with late bills, and two-thirds are living paycheck-to-paycheck. Because we are not yet in a recessionary environment, this situation could deteriorate further, making it worth watching.