Healthy labor market and income gains to push US consumer confidence higher

The US Conference Board confidence measure fell to an eight-month low of 92.2 in February from 97.8. This implies that the financial market volatility in February is starting to weigh more greatly on consumer confidence.

However, once the financial conditions stabilise, strong labor market conditions and income gains should boost consumer confidence. The decline in the headline index suggests a fall in both present conditions and expectations index. However, this is slightly surprising given the sharp decline in gasoline prices in February.

The forward-looking expectations index dropped from 85.3 to 78.9. At this level, it is consistent with real consumption growth of about annualised rate of 2%. The present conditions index fell to a 112.1 from 116.6. Meanwhile, the net proportion of respondents that say jobs are plentiful declined to -2.1, from -0.6 and is at a level that is consistent with a jobless rate of somewhat above 5.2%.

The proportion of consumers expecting an increase in income dropped from 18.6 to 17.2, whereas the proportion expecting drop in their incomes declined to 12.5 from 10.7. The net proportion between the two dropped to a level, which is consistent with an average hourly earnings growth of closer to 2.5%.

Meanwhile, the 12-months ahead inflation expectations index fell slightly from 4.8% to 4.7%. However, that still took the index to an eight-year low that will underpin concerns that expectations are becoming unanchored.