The Conference Board’s index of consumer confidence sank to 98.7 this month from a revised 105.6 in August the Conference Board said Tuesday.
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…Consumers’ assessments of current business conditions turned negative while views of the current labor market situation softened further.”
There are really too many ways to measure economic health, and consumers are prone to pick and choose their favorite economic subject—whether it is inflation, job conditions, or just general business conditions they hear about—hence their uncertainty.
Right now, consumers are worried about what will happen as a result of the Federal Reserve decision to finally cut interest rates after two years. The Fed’s decision is both a good and bad sign, It’s good because the cost of borrowing will now drop sharply based on loan rates—for housing as well as goods and services that depend on borrowed money.
The Bank Prime Loan Rate is 8.50%, which is why credit card rates have been above 20 percent for so long, and card rates could crop as low as 15% based on the Fed’s current projections, as I’ve said.
But it’s also a sign the Fed is worried that it waited too long. Fed Chair Powell in his remarks after the announcement of the recent -0.50% rate cut, said they probably would have begun the rate cuts in their July meeting; if they had known of the Labor Department downward revision to one year’s job totals—812,000 fewer jobs were created from April 2023 to March 2024.
Consumer confidence is also being affected by the Presidential election. The NY Times reports that Arizona voters in surveys see a completely different picture of the economy, based on their political affiliation.
When asked in a recent Times/Siena Poll if “the nation’s problems were so bad that it was in danger of failing,” 72 percent of Republicans agreed vs. just 16 percent of Democrats.
Wow, why such a difference? We know why MAGA Republicans want the reality to be apocalyptic—they should believe what Trump says not actual government data. That is what their propaganda is designed to do, and because the US economy is so diverse it works for those that want to hear bad news when actual facts are publicly available.
So why the pessimistic tilt in this poll? Consumers seem to be seeing what the Fed Governors are seeing, a growing unease over the job market. Though still at full employment, company hirings have slowed down.
“The deterioration across the Index’s main components likely reflected consumers concerns about the labor market and reactions to fewer hours, slower payroll increases, fewer job openings—even if the labor market remains quite healthy, with low unemployment, few layoffs and elevated wages,” said the Conference Board’s Peterson.
In actuality, hirings have slowed after two years of record job formation, and inflation is almost back to pre-pandemic levels. Yet the “Perceived Likelihood of a US Recession over the Next 12 Months ticked up in September but remained well below the May 2020 peak, per the poll.
So what are consumers to believe? My recommendation is use your common sense. Read reputable, widely available news sources. Ask how the company you work for is doing? The cost of things borrowed will come down, but inflation overall is back to its historical level of 2 percent; any lower than that and it would be signs of a looming recession.
We should be returning to a more normal economy with normal job creation, now that the two weakest legs of growth—manufacturing and housing—will begin to benefit from lower interest rates.
Harlan Green © 2024
Harlan Green on Twitter: https://twitter.com/HarlanGreen
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