Consumer confidence falls over concerns of inflation, recession
Consumer spending drives about 68% of America’s total economic growth. That’s a lot. Quite simply, in the realm of Wall Street, the American consumer reigns supreme. Confident and optimistic consumers tend to spend their money much more freely, which ultimately powers the economy forward.
Released each month by The Conference Board, the Consumer Confidence Index (CCI) is a key measure of consumer optimism. The CCI has a benchmark of 100. Any level above 100 indicates an optimism by consumers on jobs, income and the economy. Below 100 conveys pessimism.
On Tuesday, The Conference Board released its CCI for September which showed that consumer confidence fell to a four-month low. The September CCI was reported at 103, below Wall Street’s forecast of 105.8 and well below August’s level of 108.7. In July, the index reached 114, a two-and-a-half year high. For perspective, the CCI plunged to 85.7 in April 2020 in the initial aftermath of the COVID pandemic. The post-pandemic high is 128.9, set back in June 2021.
Dana Peterson, Chief Economist at The Conference Board, admits the latest data is “disappointing.” He further notes “The decline in consumer confidence was evident across all age groups, and notably among consumers with household incomes of $50,000 or more.”
The ongoing decline in consumer optimism corresponds to the recent resurgence of inflation. In June, the rate of inflation reached a two-and-a-half year low of 3%. But in July, inflation rose to 3.2%. In August, it rose even higher to 3.7%.
The latest consumer confidence report continues to show a growing divergence between short-term and longer-term expectations. In the short-term, consumers remain a bit more optimistic, especially on the state of the labor market. In September, 40.9% of consumers surveyed said jobs are “plentiful”, slightly above the 39.9% reported in August. Likewise, just 13.6% said jobs were “hard to get.”
But consumer optimism begins to break down in the longer-term. Just 16.3% of consumers expect their incomes to increase over the next six months. Just 14.1% expect business conditions to improve. Finally, and perhaps most importantly, nearly 70% of consumers say a recession within the next 12 months is either “somewhat likely” or “very likely.”
High inflation, rising interest rates and an uncertain landscape for the U.S. economy continue to weigh on Americans’ optimism. Moreover, the Federal Reserve recently announced that it expects high inflation to last through the end of 2026 – another three more years. This higher-for-longer forecast on inflation will likely further cloud the outlook on interest rates and whether the economy does or does not dip back into recession within the next 12 months. Consumers don’t like uncertainty, especially when it comes to their financial well-being.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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