US consumer confidence sours on labour market jitters

US consumer confidence dropped by the most in three years in September amid mounting fears over the labour market, though more households planned to buy a home over the next six months.

The Conference Board survey on Tuesday also showed consumers expected inflation to increase in the coming year, clouding their views of the economy ahead of the Nov. 5 presidential election. The economy could determine the outcome of the vote.

Still, consumers remained interested in traveling and dining out as well as going out to movies. That could help to underpin consumer spending and the economic expansion.

The Federal Reserve last week cut interest rates by 50 basis points to the 4.75 per cent-5.00 per cent range, the first reduction in borrowing costs since 2020, which Fed Chair Jerome Powell said was meant to demonstrate policymakers’ commitment to sustaining a low unemployment rate. The jobless rate is currently at 4.2 per cent.

“The plunge in consumer confidence underscores the growing pressure on many households as the labour market weakens,” said Ben Ayers, senior economist at Nationwide. “If the Fed follows through with a relatively aggressive easing cycle over the next year, that could shore up consumers’ optimism in the state of the economy and keep the economy from a hard landing.”

The Conference Board’s consumer confidence index dropped to 98.7 this month from an upwardly revised 105.6 in August. The decline was the largest since August 2021. Economists polled by Reuters had forecast the index rising to 104.0 from the previously reported 103.3.

The cut-off date for the survey was Sept. 17, before the US central bank kicked off its easing cycle.

The biggest drop in confidence was among the 35 to 54 years age group. Confidence fell across most income groups, with consumers earning less than $50,000 a year experiencing the biggest decrease. The Conference Board said write-in responses about politics, including the November elections, remained below both 2020 and 2016 levels.

“The deterioration across the index’s main components likely reflected consumers’ concerns about the labour market and reactions to fewer hours, slower payroll increases, fewer job openings, even if the labour market remains quite healthy, with low unemployment, few layoffs and elevated wages,” said Dana Peterson, chief economist at the Conference Board.

Stocks on Wall Street inched higher. The dollar fell against a basket of currencies. US Treasury yields rose.

BUYING PLANS MIXED

The share of consumers who viewed jobs as being “plentiful” dropped to 30.9 per cent, the lowest since March 2021, from 32.7 per cent in August. Some 18.3 per cent of consumers said jobs were “hard to get,” up from 16.8 per cent last month.

The survey’s so-called labour market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, fell to 12.6. That was the narrowest since March 2021 and was down from 15.9 in August.

This measure correlates to the unemployment rate in the Labor Department’s monthly employment report.

Economists said at first blush the shrinking labour market differential would imply the jobless rate rising to 5 per cent, but noted that monthly moves can be noisy.

“The persistent drop in this measure is a clear sign that the labour market is not nearly as tight as it once was,” said Shannon Grein, an economist at Well Fargo. “That said, we’re hesitant to put too much weight on this data given broader confidence measures have remained depressed this cycle despite resilient spending habits of households.”

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)