While standing in line at a local grocery store this week, waiting to purchase food for yesterday’s Thanksgiving meal, it was interesting to hear other shoppers mention the cost of their groceries to the store’s clerks. Unlike past years, there was less shock and outrage at the totals being paid. Instead, those same shoppers were commenting on grocery costs being “better than expected” or “no worse than last year”. This anecdotal experience, and others like it in the past months, are starting to paint a picture that consumer confidence in the U.S. is back on the rise. Despite a shortened trading week in U.S. capital markets, economic data was published that seems to support these experiences.
November’s Consumer Confidence Index results were released on Tuesday with an increase to 111.7, an incremental gain from October’s reading of 109.6. The measurement is taken by interpreting data from the Consumer Confidence Survey and assumes that a more optimistic consumer will be more likely to spend, and therefore inject money into the U.S. economy. Importantly, this most recent data point reinforces that the Consumer Confidence Index is trending back upward after wavering in the first half of the year. According to The Conference Board (the index’s publisher), the increase was most pronounced in those aged 35 or younger and stemmed primarily from optimism around the labor market and future job availability. They also noted that continued inflation relief was a top concern and remained an influence for consumers’ confidence levels headed into 2025.
Turning attention to changes in inflation, the Personal Consumption Expenditures measure was updated on Wednesday, rising +0.2% in October and +2.3% year-over-year. This number is still higher than what many would like to see, but there is some consumer relief buried within it. The main components of this measure are the prices of goods, services, food and energy. Compared to one year ago, prices for goods decreased 1% and prices for services increased 3.9%. Prices for energy decreased 5.9% and food prices increased 1%. These year-over-year changes demonstrate inflation relief in spending categories that are essential to all U.S. consumers – goods, food and energy. It also shows the inflation reduction glass is not all the way full, as services inflation (which includes housing and shelter costs) continues to drive the “hotter” inflation numbers that are persisting longer than hoped. Those housing costs also have an outsized impact on younger consumers who rent their homes and are expected to persist as long as the country continues to experience a shortage in available housing.
One other inflation measure that captured attention for many this week was the cost of an average Thanksgiving dinner, which surprised consumers by declining 5%, according to the American Farm Bureau Federation. This measure tracks prices of a group of goods that appear on most Thanksgiving tables, from carrots to turkey to whipping cream. It is another tangible example of moderating inflation in a budget area that has been especially painful for consumers in recent years.
Looking forward to December, increased consumer confidence can be an indicator of higher spending levels going into the major holiday season. According to a recent TransUnion survey, millennials plan to do just that, with 63% of that age group planning to spend either the same or more on holiday shopping as was spent the year before. It is notable that this age group is the one that felt the largest change in consumer confidence despite being more acutely impacted by services/housing inflation. Further, a different survey from Deloitte showed that across all age groups, holiday shoppers expect to spend an average amount of $1,778, or 8% more than the year prior. The increase outpaces year-over-year inflation growth and indirectly demonstrates increased confidence across all generations. At the end of the day, the inflation reduction glass is not completely full as housing prices stay stubbornly high. Despite this, it is plain to see that a consumer who is willing to spend is a confident one.
Takeaways For the Week:
The S&P 500 index hit its 52nd all-time high of the year and closed over 6,000 for the second time ever on Tuesday
The cost of a typical Thanksgiving meal fell 5% compared to last year
Personal Consumption Expenditures (PCE) rose +0.2% in October and +2.3% year-over-year, with services inflation contributing much of that growth