Americans haven’t been this rattled since Covid as consumer confidence plunges

The biggest source of pain has shifted from inflation to the labor market
By Sam Bourgi
•
25 September 2024
Share:
Consumers shopping confidence

A closely watched measure of U.S. consumer confidence plunged in September by the most in three years, as Americans’ outlook on jobs and the economy soured.

The Conference Board’s consumer confidence index fell to 98.7 in September from 105.6 the previous month. It was the biggest one-month drop since August 2021 and well below forecasts calling for a reading of 104.

By comparison, the confidence gauge had a reading of 132.6 just before Covid lockdowns in early 2020.

Consumers’ views of their current economic conditions and expectations for the next six months were more pessimistic compared to August.

According to the survey, the biggest source of pessimism was the labor market. This is a major shift from just a few months ago when most consumers complained about the cost of living.

“Consumers’ assessments of current business conditions turned negative while views of the current labor market situation softened further,” said Conference Board economist Dana Peterson.

“Consumers were also more pessimistic about future labor market conditions and less positive about future business conditions and future income,” said Peterson.

With concerns about the labor market on the rise, economists say the Federal Reserve began cutting interest rates at the right time.

Fed steps up to protect the labor market

In recent weeks, the Fed has made it clear that the balance of risks in the economy has shifted from inflation to the labor market.

After cutting interest rates by 0.5% on Sept. 18, Fed Chair Jerome Powell said policymakers would have acted sooner had they known how quickly the labor market was deteriorating.

“If you ask, you know, if we’d gotten the July report before the meeting, would we have cut? We might well have,” Powell told reporters after the latest Federal Open Market Committee meeting.

Powell was referring to the July nonfarm payrolls report, which showed that hiring slowed to just 114,000 positions as unemployment rose to a nearly three-year high of 4.3%.

Beyond the July nonfarm payrolls report, government statisticians admitted in August that they overcounted employment growth by 818,000 positions between March 2023 and March 2024.

This led some economists to opine that the U.S. economy was in a “backdated” recession that actually began many months ago.

Against this backdrop, the September rate cut “seems like the Fed wanted to catch up from not going in July,” said Oscar Munoz, an economist at TD Securities.

Ryan Sweet, the chief U.S. economist at Oxford Economics, called the Fed’s jumbo-sized rate cut a “preemptive strike to increase the odds [of] a soft landing.”

The Fed is expected to cut interest rates again at its final two meetings of 2024. According to CME Group’s FedWatch Tool, there’s a greater than one-in-two chance that the Fed will cut rates by another 0.5% in November.

More from Creditnews: