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Inflation Concerns Muddy Consumer Outlook

While American consumer confidence rose in December as inflation expectations retreated, people are still concerned about their finances as they mull the year to come.

Consumer confidence

The Consumer Confidence Index in December rose to 108.3 from 101.4, hitting the highest level since April 2022 following back-to-back monthly declines that began in October. Both components of the Index also saw increases. The Present Situation Index rose to 147.2 from 138.3, while the Expectations Index increased to 82.4 from 76.7. But the latter is hovering in the 80-range, otherwise known as recession-level territory.

Lynn Franco, senior director of economic indicators at The Conference Board, said the increases in both indices reflects consumers’ more favorable view of the economy and jobs. Falling gas prices helped the inflation expectations in December sag to its lowest level since September 2021.

“Vacation intentions improved, but plans to purchase homes and big-ticket appliances cooled further. This shift in consumers’ preference from big-ticket items to services will continue in 2023, as will headwinds from inflation and interest rate hikes,” Franco said.

On the labor front, 47.8 percent of respondents said jobs were “plentiful,” up from 45.2 percent last month. Looking ahead six months, respondents were still optimistic about the short-term labor market, with 19.5 percent expecting more jobs to be available, up from 18.5 percent.

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However, also six months out, consumers were mixed about their short-term income prospects. In the December survey, which had a cutoff date of Dec. 15, 16.7 percent of those polled expect their incomes to rise, down from 17.1 percent last month. And 13.3 percent said their incomes will decrease, down from 15.8 percent.

Americans’ financial outlook not so upbeat

Inflation remains a top stressor heading into 2023.

In a personal finance survey commissioned by Slickdeals, 59 percent blamed inflation for why they were postponing major purchases. They’re holding on off on investing in new cars (42 percent), clothing (38 percent), smartphones (31 percent), renovation projects (28 percent) and computers (24 percent), according to the annual survey of 2,000 people in the U.S.

Inflation is just the beginning of consumers’ problems. They’re also worried about gas prices (52 percent), having more bills to pay (38 percent) and the ongoing pandemic (32 percent). Medical expenses (47 percent) were last year’s chief stressor, while another 38 percent was anxious about the sudden loss of income. In 2020, most people worried about the Covid-19 pandemic (53 percent).

But despite the dismal outlook, just 63 percent said their New Year’s resolution is to be smarter about their money, down from 76 percent in 2021 and 73 percent in 2020. In fact, 11 percent said they were so frustrated with 2022 that they’re not even bothering with making any resolutions in 2023.

The good news is that 55 percent aim to repair their financial status in 2023. They said they will do that by spending more wisely at 54 percent, getting rid of unnecessary bills at 41 percent, getting out of debt at 36 percent, and by creating a monthly budget at 35 percent.