Chart Content: The Conference Board Present Situation Index, Expectations Index, and the difference between the two.
Chart Significance: Each month, the Conference Board releases the Present Situation Index and the Expectations Index based on consumer survey results. The Present Situation Index is based on consumers’ assessment of current business and labor market conditions. The Expectations Index is based on consumers’ short-term outlook for income, business, and labor market conditions. In February 2023, the Present Situation Index increased to 152.8 based on a more favorable view of the labor market, while the Expectations Index fell to 69.7 given consumers’ more pessimistic view over the next six months. What is notable in this data set is that the gap between the two is indicative of levels seen prior to most U.S. recessions going back to 1970. When consumers see a more pessimistic outlook for the future relative to the present, consumers tend to boost precautionary savings and reduce spending
Potential Forward-Looking Implications: The Federal Reserve continues to tighten monetary policy to battle inflation through higher interest rates and higher unemployment, leading consumers to expect a recessionary outcome in the near term. Yet the reality is that the resilience of the consumer and the labor market have likely delayed the onset of a recession until 2024, as higher rates have yet to curtail spending or negatively impact employment to the extent that the Federal Reserve deems appropriate. Given our view that interest rates are likely to remain marginally higher through year-end and that the potential recession next year will likely carry a soft-landing undertone given the absence of prudential risks to the economy, we continue to favor equity market participation, which carries the possibility of a mid to high single digit return in 2023.
Investment advice offered through CX Institutional, a registered investment advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted.
All data is sourced from Bloomberg, through the release of monthly figures from the U.S. Bureau of Labor Statistics or from the Federal Reserve and any of its affiliated regional location.