Gas prices fell about 21 cents a gallon last month. Right on cue, consumer confidence jumped. The Conference Board said Tuesday that its index rose 7.5 points to 91.7 in October, up from 84.2 in September, according to its October release.
That is real good news, and it beat expectations. Economists polled by Reuters had forecast a reading of just 81, Reuters reports. Still, read past the headline number. The survey tells a simple story about what moves American families, and Washington should pay attention to it.
Key Takeaways
- The Conference Board consumer confidence index rose 7.5 points to 91.7 in October.
- September’s reading was the lowest since April 2014 and below the pandemic low, according to AP.
- The board tied the rebound to gas prices easing from September to October.
- Regular gas averaged $4.27 a gallon on Tuesday, down from $4.48 a month earlier but up from $3.05 a year ago.
- Consumers still expect 5.8% inflation over the next year and plan to spend less on big purchases.
Why Consumer Confidence Bounced in October
The Conference Board did not hide the reason. “The recovery was in line with retail gasoline prices easing from September to October,” said Fergus McCormick, the board’s senior economist for global indicators.
The numbers back him up. According to AAA figures cited by The Associated Press, regular gas averaged $4.27 a gallon on Tuesday. That was down from $4.48 a month earlier. However, it was still far above the $3.05 drivers paid a year ago.
Remember where we started. September’s consumer confidence reading was the lowest in the survey since April 2014, AP reports. In fact, it was below the lowest level reached during the pandemic. So October did not bring a boom. Instead, it brought relief from a very deep hole.
Both halves of the index improved. The Present Situation Index rose 8.6 points to 120.4. Meanwhile, the Expectations Index climbed 6.9 points to 72.6, which only partly reversed three straight monthly declines.
The Gas Pump Is the Real Mood Ring
Here is the lesson. Most families do not read Federal Reserve statements. They read the sign at the gas station on the way to work. When that number drops, they breathe a little easier. That is why consumer confidence so often tracks the price of a gallon of gas.
Gas prices have climbed during the Iran war, as Tehran’s restrictions on shipping in the Strait of Hormuz squeeze energy supplies, The Hill reports. Diesel fell roughly 12 cents over the past month. Even so, it is still nearly $2.70 a gallon more than a year ago.
Diesel matters more than most people think. It moves the trucks that carry groceries, and it runs the tractors that plant them. So when diesel spikes, the cost shows up everywhere else. That is why the consumer confidence survey’s write-in answers kept pointing to food.
Consumers “continued to express frustration with rising costs,” McCormick said. Specifically, he noted that references to prices, groceries, and oil and diesel prices all rose in October.
What the Consumer Confidence Survey Says About Your Wallet
Dig deeper and the picture gets tougher. Consumers still expect inflation of 5.8% over the next 12 months, the board found. That is lower than last month, but it remains elevated. They also expect interest rates to keep rising.
As a result, families are pulling back even as consumer confidence improves on paper. People plan to spend less on services and durable goods over the next six months. Plans to buy cars and homes slipped slightly. Furthermore, fewer people plan to take a vacation.
McCormick explained why. Consumers are reacting to “higher price levels and persistent inflation, which eroded consumers’ purchasing power.” In plain English, paychecks are not stretching as far as they used to. Any family that keeps a budget already knows this.
Not everyone feels this the same way. On a six-month average, only consumers under 35 and households earning $100,000 or more grew more confident. By contrast, Gen X, Baby Boomers and the Silent Generation still trail younger Americans by a wide margin. Older Americans on fixed incomes feel every price hike, which is why we warned that the Fed cannot blink on inflation.
Consumer Confidence Is Still Below Its Old Trend
Even after the jump, McCormick said confidence “remained on the long-term downward trend that’s persisted over the past few years.” One good month does not erase five years of elevated inflation, as AP put it. Families have long memories at the checkout line.
What Washington Should Learn
To be fair, this is not a clean win for anyone in power. AP notes that inflation has risen since President Trump took office last year, and annual inflation hit 3.7% in September, The Hill reports. With the midterms set for November 3, voters will judge both parties on prices.
But the lesson for policymakers is clear. Energy prices drive how families feel about the economy. Therefore, the most pro-family policy on the table is more American energy. That means more drilling, more pipelines and more refining capacity. Notably, America is already better positioned than Europe, as we explained in our look at Europe running low on gas this winter.
Second, Washington needs to stop adding fuel to the fire. A government that keeps borrowing keeps pressure on interest rates. Consumers already expect higher rates, and they are right to worry. After all, interest on the national debt now tops defense spending. Every dollar spent on interest is a dollar that does not help a family.
So yes, celebrate the October bump. Then remember why it happened. Families did not get richer last month. Their gas just got a little cheaper. If Washington wants confidence to last, it should make energy abundant and keep its own spending in check.
FAQ
What is the consumer confidence index?
It is a monthly survey from The Conference Board that measures how Americans feel about business conditions, jobs and their income. The index uses 1985 as its baseline of 100. The October reading was 91.7.
Why did consumer confidence rise in October?
The Conference Board said the rebound was in line with easing gas prices. According to AAA figures cited by AP, regular gas fell from $4.48 to $4.27 a gallon over the month.
Is the economy improving for families?
Partly. Confidence improved, but consumers still expect 5.8% inflation over the next year. They also plan to spend less on big-ticket items, and confidence remains on a long-term downward trend.
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