By Lucia Mutikani

WASHINGTON, (Reuters) – U.S. consumer confidence dropped to a 5-month low in February. There were concerns over the economic outlook and consumers are less likely to buy homes or go on vacations for the next six-months.

According to the Conference Board’s Tuesday survey, inflation expectations rose after a slowdown for two consecutive months. The labor market is rapidly creating jobs, and COVID-19 cases are subsiding. Therefore, the second consecutive monthly drop in confidence and fall in purchasing intentions do not likely signal any slowdown in consumer spending.

Even though confidence was low, retail sales rose in January.

Robert Frick is the corporate economist for Navy Federal Credit Union. He said, “Though inflation has been high and a major concern to consumers, it hadn’t historically restricted spending.” We can expect increased spending on services and especially in the Omicron Wave to subside quickly.

Conference Board reported that its consumer confidence index fell to 110.5 from 111.1 in January. This is the lowest level since last September. Reuters polled economists and predicted that the index would fall to 110.0.

This index is above its lows during the Pandemic. The Conference Board survey, however, is more focused on the labor market than the University of Michigan’s Consumer Sentiment Index, which dropped to a decade-low in February.

Conference Board’s survey showed an improvement in current conditions, probably due to declining Omicron-related coronavirus infections. The survey’s measure of short-term growth expectations fell to a low of five months, which suggests a slowdown in first half growth.

However, the survey shows that there will likely be a modest economic slowdown. Business activity is expected to pick up in February after the Omicron surge’s impact has subsided.

Data firm IHS Markit reported that its flash U.S. Composite pmI Output index, which measures the services and manufacturing sectors, rose to 56.0 in February from 51.1 in January. The sharp increase was attributed to the return of sick leave by IHS Markit, as well as increased travel and increased availability of raw material.

An increase in private sector growth is indicated by a reading of 50.

According to the survey, the increase in business activity mirrors recent improvements in so-called “hard data” such as retail sales.

U.S. stocks fell due to fears of war in Europe. This was due to rising Russia-Ukraine tensions as well as threats of sanctions. Dollar fell against other currencies. The yields on U.S. Treasury bonds rose.

Tight Labor Market

From 43.0 in Jan, the Conference Board’s labor market differential (derived from responses to questions about job availability and difficulty) fell to 42.0 this past month.

This correlates with the Labor Department’s unemployed rate. End December saw 10.9 million job opportunities

The inflation expectations of consumers for the next twelve months rose to 7.0%, from 6.8% in October. Inflation expectations are rising and consumers expect to spend less on cars and big-ticket goods in the coming six months. The consumer interest in vacations was also low, with the lowest share of those planning on going on holiday during the same time period since June 2021.

Also, plans to buy a house fell due to increasing mortgage rates. This, combined with rising prices, makes home buying unaffordable for many, especially first-time buyers.

Prices are rising due to a severe shortage of housing. A third report on Tuesday showed the S&P CoreLogic Case-Shiller’s 20 metropolitan area home price index rose 18.6% on a year-on-year basis in December after advancing 18.3% in November.

The Federal Housing Finance Agency’s fourth report, which showed that prices of houses rose 17.6% between November and December 2017, reflects strong inflation.