'Consumers increasingly expect a recession,' says UMich

Economic data released at the close of March is sending mixed signals about the consumer.


As March 2023 comes to an end, economic data is delivering mixed signals about the consumer.

A key government measure showed consumer spending and inflation both cooled off in February. Meanwhile, separate measures of the consumer mood provided conflicting views of the outlook for the economy, and spending plans.

Here’s a look at the latest data:

Consumer spending: In February, consumer spending rose 0.2% over January, according to the Personal Consumption Expenditures Index. While this was an uptick, it was far less than the 2% increase observed for January. The index’s real PCE measure said spending for goods was down a modest 0.1% for the month.

Disposable income increased 0.5% for the month in February. This was a more modest increase than the 2% gain observed in January, but the notable rise will help consumers at a time when they are seeking to keep pace with rising prices amid inflation.

Inflation: The PCE Price Index, which is the preferred measure of inflation among economists and the Federal Reserve, showed inflation cooled off in February. The monthly increase for core inflation was 0.3% over January, which was lower than 0.5% observed the month before. On an annual basis, the change was less marked, as core inflation increased 4.6% in February, which is only slightly above the 4.5% rise in prices observed in January.

Consumer sentiment falls: Consumer sentiment fell 8% below February, according to the University of Michigan. While the shopper mood remains 4% better than a year ago, the outlook is starting to get cloudy. “Overall, our data revealed multiple signs that consumers increasingly expect a recession ahead,” wrote UM Survey of Consumers Director Joanne Hsu. Inflation expectations for the year-ahead came in at 3.6%, which is a drop to their lowest level since April 2021. It’s a sign that people see signs that prices will come down, even if economic fortunes might shift.

Consumer confidence rises: U.S. consumer confidence increased slightly in March as this index showed expectations for the near term improved in March, according to the Conference Board. While confidence is below the 2022 average, there was an improved outlook among people over the age of 55, and households earning more than $50,000.

“While consumers feel a bit more confident about what’s ahead, they are slightly less optimistic about the current landscape,” said Ataman Ozyildirim, senior director of economics at The Conference Board, in a statement. “The share of consumers saying jobs are ‘plentiful’ fell, while the share of those saying jobs are ‘not so plentiful’ rose. The latest results also reveal that their expectations of inflation over the next 12 months remains elevated…Overall purchasing plans for appliances continued to soften while automobile purchases saw a slight increase.”

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