US consumer confidence falls in March; inflation expectations are reduced

The US consumer confidence it fell in March for the first time in four months, but households expect inflation to ease over the next year and beyond, which could offer some relief to the Federal Reserve as it battles volatility in financial markets.

The dip in confidence reported Friday by the University of Michigan came ahead of the recent failure of two regional banks, which sparked fears of contagion in the financial sector. Concerns about a banking crisis, amid data this month that showed a still-tight job market and stubbornly high consumer prices in February, have created a dilemma for the Fed.

“Inflation expectations are falling, which gives the Fed some flexibility in the future path of rate hikes,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. “The Fed now has two serious concerns about financial stability and persistent inflation.”

The preliminary reading of March general index of consumer confidence from the University of Michigan stood at 63.4 points, down from 67 the previous month. Economists polled by Reuters had estimated a preliminary reading of 67.0.

“This month’s decline had already occurred in its entirety before the Silicon Valley Bank failed, by which time about 85% of our interviews for this preliminary publication had been completed,” said Director of Consumer Surveys, Joanne Hsu.

The survey reading on one-year inflation expectations fell to 3.8%, the lowest since April 2021, from 4.1% in February. Its five-year inflation outlook fell to 2.8%, falling below the tight 2.9-3.1% range for the second time in the last 20 months.

Financial markets expect the Fed to raise interest rates another quarter of a percentage point next Wednesday, according to CME Group’s FedWatch tool.

But instability in the banking sector following the failures of Silicon Valley Bank in California and Signature Bank in New York, as well as the problems at Credit Suisse, has raised some speculation that the central bank may pause its tightening campaign. the most aggressive monetary policy since the 1980s.

The Fed has raised its benchmark rate by 450 basis points since last March, from near zero to the current 4.50-4.75 percent.

Manufacturing production increases

Other data released on Friday showed that US factory output rose in February and that the previous month’s production was higher than previously thought, but the manufacturing sector continues to struggle under the weight of higher interest rates.

Manufacturing output grew 0.1% last month, according to the Federal Reserve. Data for January was revised up to show an increase of 1.3%, instead of the previously announced 1.0%. Economists polled by Reuters had forecast a 0.2 percent drop in output.

The production fell 1.0% yoy in February.

The manufacturing sector, which accounts for 11.3% of the US economy, contracted in the third and fourth quarters of 2022 as higher borrowing costs reduced demand for goods, which are often bought on credit. Spending is also shifting from goods to services.

The measurement of the manufacturing activity of the Institute of Management and Supply has contracted for four months in a row. Although activity in February appeared to stabilize at weaker levels, a rebound is unlikely. Regional Fed surveys this week showed that manufacturing in New York State and the Mid-Atlantic area remained depressed in March.