Consumers lift spirits to end 2022

American consumers are ending the year on a hopeful note.

The Consumer Confidence Index rebounded in December after two straight months of declines, according to the Conference Board. This marked the highest reading for the index since April 2022.

The bounce up to 108.3 was a marked improvement over 101.4 in November. Consumers’ assessments of the current business and job conditions stepped up, as did expectations. However, the short-term outlook continues to hover around levels consistent with a recession.

The report came after two straight months of Consumer Price Index reports showing a deceleration of inflation in a year when it has been parked at 40-year highs. Economists say there is more work to do to bring inflation down, but gas prices have dropped, even as food prices remain elevated.

"The Present Situation and Expectations Indexes improved due to consumers' more favorable view regarding the economy and jobs,” said Lynn Franco, senior director of economic indicators at the Conference Board, in a statement. “Inflation expectations retreated in December to their lowest level since September 2021, with recent declines in gas prices a major impetus.”

The uptick is a welcome signal to end a year in which consumer confidence and other measures like the University of Michigan’s consumer sentiment index have been in the doldrums amid stubborn inflation. It's especially encouraging at a time when recession fears for 2023 are fomenting.

It's among the signs that the economy continues to hold up. Third-quarter gross domestic product was revised upward to a growth rate of 3.2% by the US Bureau of Economic Analysis on Thursday. That's up from 2.9% in a prior reading. Meanwhile, the job market continues to be historically tight. Initial jobless claims inched up by 2,000 this week, but the theme across the economy continues to be one of job security.

But hazards remain heading into 2023. Inflation is still elevated, and the Federal Reserve has been hiking interest rates for months. The cumulative effect of these actions on consumers will be a key economic story of the next year. Some areas are already feeling the impact. Home sales fell for the 10th straight month, with a 7.7% decline, the National Association of Realtors reported.

The Conference Board is already detecting a pullback in larger buys.

“Vacation intentions improved but plans to purchase homes and big-ticket appliances cooled further,” Franco said. “This shift in consumers' preference from big-ticket items to services will continue in 2023, as will headwinds from inflation and interest rate hikes."