The Federal Reserve cut interest rates for the first time in four years and the stock market hit a record high. You might think consumers would be humming “Happy Days are Here Again,” but they’re not.
According to The Conference Board, consumer confidence dropped sharply this month. The board’s Present Situation Index, based on consumers’ feelings about current economic trends, fell by 10.3 points to 124.3.
The Expectations Index – based on consumers' short-term outlook – declined by 4.6 points to 81.7, but remained above 80. That’s significant because a reading below 80 usually signals a recession is on its way.
"Consumer confidence dropped in September to near the bottom of the narrow range that has prevailed over the past two years," said Dana M. Peterson, chief economist at The Conference Board. "September's decline was the largest since August 2021 and all five components of the Index deteriorated.”
What’s notable, says Peterson, is consumers' assessments of current business conditions turned negative while views of the view of the current labor market situation continued to softened. Consumers were also more pessimistic about future labor market conditions and less positive about future business conditions and future income.
Middle-age consumers are the most worried
"The drop in confidence was steepest for consumers aged 35 to 54,” Peterson said. “As a result, on a six-month moving average basis, the 35–54 age group has become the least confident while consumers under 35 remain the most confident.”
Meanwhile, confidence declined this month across most income groups, with consumers earning less than $50,000 experiencing the largest decrease. On a six-month moving average basis, consumers earning over $100,000 remained the most confident.
Peterson thinks consumers are most concerned about the labor market. Layoffs are increasing and jobs are getting harder to come by. And despite recent declines, inflation is still a cause of worry.
Despite slower overall inflation and declines in some goods prices, consumers’ average guess at the inflation rate in the next twelve months was 5.2%, higher than the current rate.