Consumer confidence fell below expectations in October as inflation concern persists. The Conference Board’s consumer confidence index was down to 102.5 from 107.8 from a month earlier.
Consumers’ expectations for the median inflation over the next 12 months rose to 6.2% from 6.0%, the highest in three months. This should further complicate the Fed’s effort to tame inflation, which remains extremely sticky.
Our forecast for the personal consumption expenditure price index—the Fed’s key inflation metric—shows a potential upside surprise this week, pointing to a core PCE inflation at 5.3% on a year-ago basis. That suggests the Fed will have to raise rates to over 5% before any pivot is considered.
But there is a bright spot. The labor differential index—which measures the difference between jobs-plentiful and jobs-hard-to-get responses—dropped to 32.5, a sign of a continuing drop in labor demand. October’s reading is the lowest since April 2021 when the labor crunch began to form. Targeting labor demand has been one of the Fed’s top goals to control inflation.
Underneath the top line, consumers signal more spending ahead as the holiday shopping season approaches and travel plans slow. The data reaffirms our forecast for a solid last quarter of economic activities and spending following a strong third quarter, despite inflation and economic downturn concerns. Our gross domestic product forecast for the third quarter stays at 2.5%—with risks to the upside as inventory and trade are the wildcards—and 1.5% for the last quarter.