U.S. consumer confidence falls to three-month low as COVID-19 cases rise

*The Conference Board U.S. Consumer Confidence Index declined by 5.3pts to 96.1 in November, a three-month low (Chart 1). The index has been stuck in an 85-102 range since April, well-below its pre-pandemic average of 129, because of the recurring spikes in COVID-19 cases that continue to have a disproportionately negative impact on services consumption. We expect goods consumption to continue to benefit from pandemic-induced trends.

*The widening gap between the survey’s present situation index (-0.3pts to 105.9) and the expectations index (‑-8.7pts to 89.5) reflects the increased uncertainty stemming from the latest spike in COVID-19 cases (Chart 2).

*Consumers’ assessments of current business conditions remained depressed in November and labor market perceptions were unchanged following increased optimism in the prior months. Although consumers’ income expectations remained low, they upgraded home and auto buying plans.

The share of consumers saying jobs are “plentiful” was flat at 26.7% in November, but exceeded the share of consumers saying jobs are “hard to get” (Nov.: 19.5%, Oct.: 19.6%) for the third consecutive month. See Chart 3. This flattening in labor market perceptions following steady improvement is consistent with an unchanged unemployment rate in November after sharper-than-expected declines throughout the recovery (Chart 4). The elevated share of consumers that continue to perceive jobs as “not so plentiful”, 53.8%, compared to the pre-pandemic average of 41.4%, indicates that the labor market is still far from normal.

The share of households that expect their incomes to increase over the next six months inched up to 17.6%, placing it 3pp above its May trough of 14.6%, but 4.6pp below its pre-pandemic average of 22.2% (Chart 5).

The share of households planning to buy a home increased to 7.2% in November - 1.1pp above its 2019 average of 6.1% - fueled by historically low mortgage interest rates and consistent with robust data on housing starts, home builder sentiment, mortgage applications and home sales (Chart 6). Reflecting heightened uncertainties about the near-term outlook, only 43.9% of households plan to buy major appliances within the next six months, one of the lowest shares of the last 25 years.

Consumers’ expected inflation rate over the next year remained high at 5.7%, reflecting the surge in prices for food consumed at home (Chart 7).

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Roiana Reid, roiana.reid@berenberg-us.com

Member FINRA & SIPC
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