Inflation Concerns and Job Stability: Factors Behind Declining Consumer Confidence

By Doug Young – 27 October 2023

Introduction

Consumer sentiment has taken a hit despite optimistic economic forecasts. In the face of rising interest rates and low unemployment, consumer confidence is on the decline.

Here we delve into the factors behind this trend, including inflation concerns and job stability.

Consumer Confidence Index Decline

The Conference Board’s Consumer Confidence Index has experienced a sharp turnaround, declining to 108.7 in September from 114 the month before. Dana Peterson, Chief Economist at the Conference Board, notes that this downturn erases the increases seen in previous months.

The decline in consumer confidence is evident across all age groups, with notable impacts on households earning over $100,000 and those earning less than $50,000 annually.

Inflation Worries

One of the main concerns among American consumers is rising prices. Consumers are particularly preoccupied with the costs of groceries and gasoline.

The New York Fed’s August survey of consumer expectations revealed that inflation is expected to reach 3.6% in the coming year. This rise in prices has had a significant impact on consumer sentiment, contributing to the decline in confidence.

Expectations Index

The Expectations Index, which measures future consumer sentiment, has also shown a decline, further indicating recessionary pressures.

The Conference Board warns that the index is barely above the level of 80, historically associated with signalling a recession within the next year. This suggests that consumers are becoming less optimistic about the future state of the economy.

Job Security Concerns

Job security is another recurring theme impacting consumer confidence. Recent surveys highlight a decrease in the total number of job openings, as well as a decline in the number of people voluntarily leaving their jobs.

Americans may be growing less confident in their ability to find alternative employment. A recent survey conducted by payroll education company payroll.org reveals that 78% of Americans would face financial difficulty if their pay checks were delayed by just one week.

Impact of Inflation

Inflation has been a significant factor contributing to declining consumer sentiment.

The Consumer Price Index experienced a surge of 0.6% month over month, the fastest pace since June 2022.

Annual inflation rates have also picked up speed, rising to 3.7% in the most recent report. These increases have resulted in typical American households spending over $700 more per month compared to two years ago for the same goods and services.

Conclusion

Despite low unemployment rates and strong spending, consumer sentiment remains on a downward trajectory. Rising inflation and concerns about job stability are key factors impacting consumer confidence.

The stormy outlook suggests that caution is warranted, even in the face of optimistic economic forecasts.