Macro Morsels: Consumer Confidence Sees Slight Increase in March, Expectations Remain Low

Consumers Plan to Cut Discretionary Spending on Services in the Next Six Months

The Conference Board Consumer Confidence Index® experienced a minor increase in March, reaching 104.2 from February's 103.4. Despite this improvement, consumer confidence remains below the average level of 104.5 observed in 2022. The Present Situation Index, reflecting consumers' evaluation of current business and labor market conditions, dipped to 151.1 from 153.0 last month.

Meanwhile, the Expectations Index, which gauges short-term outlooks on income, business, and labor market conditions, climbed to 73.0 from February's revised 70.4. However, the Expectations Index has remained under 80 for 12 of the past 13 months, indicating a possible recession within the next year.

Ataman Ozyildirim, Senior Director of Economics at The Conference Board, noted that the increase in consumer confidence was driven by improved expectations from consumers under 55 years of age and households with earnings of $50,000 and above.

However, consumers are less optimistic about the present situation, with a drop in the share of those who consider jobs to be "plentiful" and a rise in those who think jobs are "not so plentiful." Inflation expectations for the next 12 months remain high at 6.3 percent. Additionally, purchasing plans for appliances have weakened, while automobile purchases experienced a slight increase.

In a special question posed by the Consumer Confidence Survey® this month, consumers' spending plans on services for the next six months were examined. The findings show a trend towards reducing spending on highly discretionary categories such as playing the lottery, visiting amusement parks, attending movies, personal lodging, and dining out.

On the other hand, consumers plan to allocate more funds to less discretionary categories such as healthcare, home or auto maintenance and repair, and economical entertainment options like streaming services. Stable spending is expected for personal care, pet care, and financial services, including tax preparation.

This data release highlights consumers' cautious approach to spending in the face of growing economic uncertainty and persistently elevated inflation expectations, with a preference for essential services and more cost-effective entertainment alternatives. A trend that is not particularly helpful for an economy that is ever reliant on consumption, particularly for companies that operate within higher margin discretionary areas.