Inflation Leaves Consumers Growing More Gloomy in October
Consumer confidence fell sharply in October, as Americans became more concerned about the present state of the economy and inflation barely two weeks ahead of the midterm elections. Most surveys show a very tight race as voters place inflation and the economy as their top concern after abortion and the future of democracy gained ground this summer. Mortgage rates have nearly doubled over the past year and home sales have slowed along with price appreciation.
“House prices flow through to shelter costs in the inflation indexes that the Fed targets with a lag of several quarters, so the declines in prices in mid-2022 will start to slow inflation in 2023,” said Bill Adams, chief economist for Comerica Bank.
Consumer confidence fell sharply in October, as Americans became more concerned about the present state of the economy and inflation barely two weeks ahead of the midterm elections.
“Consumer confidence retreated in October, after advancing in August and September,” said Lynn Franco, senior director of economic indicators at the business organization. “The present situation Index fell sharply, suggesting economic growth slowed to start Q4. Consumers’ expectations regarding the short-term outlook remained dismal.”The reading comes two days before the government reports on its first estimate of gross domestic product for the third quarter. Analysts expect that number to be positive, around 3%, following two quarterly contractions in the first half, a common – though not official – measure of a recession.
It also is less than two weeks before voters head to the polls for the critical midterms, with the control of Congress hanging in the balance. Most surveys show a very tight race as voters place inflation and the economy as their top concern after abortion and the future of democracy gained ground this summer.Ironically, there has been some improvement in the inflation picture, but not enough to derail the narrative that prices for many goods, notably energy and groceries, are reaching levels not seen in 40 years. That may well prove toxic for the party in power, the Democrats, and President Joe Biden.Two areas of the economy have proven particularly sensitive to inflation and the higher interest rates that the Federal Reserve has turned to as a way to tamp down demand and inflation . Mortgage rates have nearly doubled over the past year and home sales have slowed along with price appreciation . Gasoline prices , while below the $5 a gallon mark of the summer, are still elevated at around $3.49 a gallon.
“House prices flow through to shelter costs in the inflation indexes that the Fed targets with a lag of several quarters , so the declines in prices in mid-2022 will start to slow inflation in 2023,” said Bill Adams , chief economist for Comerica Bank .“This is a big reason why financial markets anticipate for short-term interest rates to peak in early 2023, and for the Fed to start pivoting to a less restrictive monetary policy by the second half of next year ,” Adams added.Economists generally believe a recession is on the way, most probably in 2023, as a result of the Fed’s actions. But there are differences in whether it will be mild or more long-lasting. Corporate earnings, meanwhile, are holding up for bellwether companies like Bank of America and Coca-Cola. That has helped the markets to gain back some of their losses from a few weeks ago.
