Consumer confidence in the U.S. took a significant hit in September, as Americans expressed growing concern over the labor market and economic conditions. The Conference Board reported on Tuesday that its consumer confidence index fell to 98.7, down from 105.6 in August. This marks the largest month-to-month decline since August 2021, reflecting increasing uncertainty among households about the future.
The survey, conducted prior to the Federal Reserve's recent interest rate cut, paints a picture of heightened unease. The steep decline in confidence came as consumers expressed pessimism about job prospects and economic stability in the near future. The Conference Board's data shows that the index measuring Americans' short-term expectations for income, business, and employment fell to 81.7, down from 86.3 in the previous month. A reading below 80 often signals a potential recession.
"Consumers' assessments of current business conditions turned negative while views of the current labor market situation softened further," said Dana Peterson, chief economist at the Conference Board. She noted that worries over job security and future labor market conditions have been mounting, as fewer companies are looking to hire.
The labor market, once a bright spot in the U.S. economy, has shown signs of slowing. Employers added 142,000 jobs in August, a modest increase compared to the downwardly revised 89,000 jobs in July. The unemployment rate edged down slightly to 4.2%, but this remains near its highest point in three years. Additionally, government data recently revealed that the economy added 818,000 fewer jobs from April 2023 through March 2024 than previously reported, further underscoring the cooling labor market.
In response to these labor market developments, the Federal Reserve took decisive action by cutting its benchmark interest rate by 50 basis points, the first reduction in over four years. The rate now sits at approximately 4.8%, down from the 5.3% peak that had held for 14 months. The move is aimed at softening the blow of a weakening job market while keeping inflation in check.
Federal Reserve Chair Jerome Powell has acknowledged the challenges facing the labor market but maintains that the overall economic picture remains stable. "The U.S. economy is in good shape. It's growing at a solid pace. Inflation is coming down. The labor market is in a strong place. We want to keep it there," Powell said. However, he also noted that risks to the labor market are rising.
Despite the Federal Reserve's efforts to stabilize the economy, consumers' outlook on the job market remains bleak. According to the Conference Board's survey, 18.3% of respondents in September reported that jobs were "hard to get," up from 16.8% in August. Additionally, the labor market differential, which measures the gap between those who view jobs as "plentiful" and those who see them as "hard to get," hit its lowest level since March 2021.
Shannon Seery Grein, an economist at Wells Fargo, echoed these concerns, stating that the persistent drop in labor market sentiment is a clear signal of a cooling job market. "The labor market is not nearly as tight as it once was," Grein said, cautioning that although consumer confidence has waned, households have continued to show resilience in their spending habits.
Consumer spending, which accounts for nearly 70% of U.S. economic activity, is closely monitored by economists as an indicator of overall economic health. The decline in consumer confidence, however, raises concerns about whether spending will remain robust in the face of ongoing uncertainty about jobs and income.
The Federal Reserve has signaled that additional rate cuts may be on the horizon, with policymakers suggesting that further reductions could occur in the remaining months of 2024. The central bank is also eyeing four more rate cuts in 2025 and two in 2026 as part of its strategy to balance inflation control with job market support.
Inflation, once the primary concern for the Fed, has cooled significantly since its peak of 9.1% in mid-2022. By August 2024, inflation had dropped to 2.5%, bringing it closer to the Fed's target of 2%. However, with the labor market showing signs of strain, the Fed's focus has shifted toward fostering employment growth and economic stability.
