Consumer sentiment took a sharp hit in September, experiencing its largest decline over three years as fears around jobs and inflation weighed heavily on the public. According to data from The Conference Board on Tuesday, the consumer confidence index fell to 98.7 from August’s 105.6. This is the most significant one-month drop since August 2021, surprising many who expected a more modest decline.
A Significant Decline in Consumer Sentiment
The drop in confidence reflects growing unease about the state of the economy. The index had been 132.6 in February 2020, just before the COVID-19 pandemic caused widespread economic turmoil. The Dow Jones consensus forecast for September was 104, significantly higher than the actual result.
The steepest declines in confidence were observed among people aged 35-54 and those earning less than $50,000 annually, showing that concerns are particularly strong in these groups. Dana Peterson, chief economist at The Conference Board, noted, “Consumers’ assessments of current business conditions turned negative while views of the current labor market situation softened further. Consumers were also more pessimistic about future labor market conditions and less positive about future business conditions and future income.”
Inflation and Job Concerns Dominate the Outlook
A major factor driving the decline in consumer confidence was concern over the job market and inflation. The survey showed that fewer respondents believed jobs were plentiful, with that measure dropping to 30.9% from 32.7% in August. Meanwhile, the number of people who said jobs were “hard to get” rose to 18.3%, up from 16.8% the previous month.
Worries about inflation also climbed, with the 12-month inflation outlook rising to 5.2%, signaling continued concerns over rising prices. This, in turn, contributed to a drop in consumer confidence across all major components of the index.
“The proportion of consumers anticipating a recession over the next 12 months remained low, but there was a slight uptick in the percentage of consumers believing the economy was already in recession,” Peterson said.
Market Reactions and Economic Implications
The sharp drop in confidence prompted a brief dip in stock markets, while Treasury yields also moved lower. With concerns mounting about a potential economic slowdown, analysts are closely monitoring indicators for further signs of economic distress.
In addition to the consumer confidence index, other sentiment measures also weakened. The present situation measure dropped by 10.3 points to 124.3, while the expectations index fell 4.6 points to 81.7. A reading below 80 on the expectations index is generally consistent with recession risks.
The Fed’s Recent Rate Cut and Future Outlook
The report comes from the Federal Reserve’s decision to lower benchmark interest rates by half a percentage point, the first rate cut in four years. This larger-than-expected move was intended to balance concerns about inflation and the potential for a weakening labor market.
However, the survey was conducted before the rate cut took effect, which may explain why it did not reflect any potential positive sentiment from that decision. As consumers continue to grapple with inflationary pressures and employment concerns, economic observers will be closely watching how sentiment evolves in the coming months.
