Consumer confidence in the U.S. took a significant hit in September, with the Conference Board's Consumer Confidence Index falling to 98.7 from 105.6 in August. This dip marks the biggest decline since August 2021 and fell short of the 104 forecast by economists polled by Bloomberg. The sharp drop shows growing concerns among Americans about the state of the labor market and broader economic conditions.
Shifts in Labor Market Perception
According to Dana Peterson, chief economist at the Conference Board, "Consumers' assessments of current business conditions turned negative while views of the labor market softened further." Pessimism regarding future job prospects also rose, with more consumers reporting that they expect fewer opportunities ahead. In September, 18.3% of respondents said jobs were "hard to get," up from 16.8% the previous month. The labor market differential, measuring the gap between those who see jobs as "plentiful" versus "hard to get," reached its lowest point since March 2021.
This downturn in consumer sentiment comes amid an ongoing slowdown in the labor market. Unemployment has gradually risen throughout 2024, now sitting at 4.2%, close to a three-year high. Job openings, too, have declined, with July’s figures marking the lowest level since early 2021.
Fed’s Interest Rate Decision and Economic Outlook
The consumer confidence data was collected before the Federal Reserve announced a 0.5% interest rate cut on September 18. However, consumers had already been witnessing signs of a cooling labor market prior to the Fed's decision.
Federal Reserve Chair Jerome Powell recently acknowledged that risks to the labor market are growing but remains optimistic about the overall economic outlook. "The U.S. economy is in good shape," Powell said, citing solid economic growth and cooling inflation. "The labor market is in a strong place," he added, stressing that the Fed’s rate cut was aimed at maintaining stability in the job market.
Resilient Consumer Spending
Despite declining confidence, spending habits have remained relatively solid. Economists like Shannon Seery Grein from Wells Fargo suggest that consumer spending has been surprisingly resilient. "The persistent drop in this measure is a clear sign that the labor market is not as tight as it once was," Grein noted, but added that consumer spending hasn't yet reflected the downturn in confidence.
While consumer confidence has weakened, the broader economic picture continues to show mixed signals, leaving many to watch the coming months closely for further developments in both labor market trends and consumer behavior.