Consumer sentiment, as measured by the two major national surveys, was mixed in September, although the Federal Reserve’s decision at midmonth to lower interest rates could have lifted the mood of some respondents in the more positive of the surveys. The Conference Board said its Consumer Confidence Index fell significantly, from an upwardly revised 105.6 in August to 98.7. It was the biggest one-month decline in three years.
Respondents expressed fears about the job market and their income prospects. The September survey was completed Sept. 17, the day before the Federal Reserve’s policymaking committee agreed to lower the central bank’s benchmark interest rate by half a percentage point. The size of the cut was larger than some economists expected and was a move that could bolster consumer confidence going forward.
“Consumer confidence dropped in September to near the bottom of the narrow range that has prevailed over the past two years,” Dana M. Peterson, chief economist at The Conference Board, stated in a press release. “September’s decline was the largest since August 2021, and all five components of the index deteriorated. Consumers’ assessments of current business conditions turned negative, while views of the current labor market situation softened further. Consumers were also more pessimistic about future labor market conditions and less positive about future business conditions and future income.
“The drop in confidence was steepest for consumers aged 35 to 54,” Peterson added. “As a result, on a six-month moving average basis, the 35-to-54 age group has become the least confident, while consumers under 35 remain the most confident. Confidence declined in September 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.
“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. The proportion of consumers anticipating a recession over the next 12 months remained low, but there was a slight uptick in the percentage of consumers believing the economy was already in recession.”
Conversely, the University of Michigan said its Consumer Sentiment Index rose in September, from 67.9 in August to 70.1. The university’s final report for September — it produces midmonth and end-of-month surveys — was released Sept. 27, coming after the Fed’s rate decision, and the results could have been affected by that move.
“Consumer sentiment extended its early-month climb, ultimately rising more than 3% above August,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “This increase was seen across all education groups and political affiliations. Furthermore, all five index components gained, led by a 6% surge in one-year business expectations. The expectations index is now 13% above a year ago and reflects greater optimism across a broad swath of the population.”
Respondents to the university’s survey, in contrast to those queried by The Conference Board, “do not expect substantial effects on the economy” from what they see as a “slight deterioration in labor market conditions,” Hsu said. “While [consumer] sentiment remains below its historical average, in part due to frustration over high prices, consumers are fully aware that inflation has continued to slow. Sentiment appears to be building some momentum as consumers’ expectations for the economy brighten. At the same time, many consumers continue to report that their expectations hinge on the results of the upcoming election. Relative to August, consumers across political parties are increasingly expecting a [Kamala] Harris presidency, though about two-thirds of Republicans still expect [Donald] Trump to win.”
The Commerce Department said consumer spending rose 0.2% in August — 0.1% when adjusted for inflation — a gain that was somewhat less than economists expected. Personal income also rose 0.2% for the month. “The resilience of consumer spending and the stronger foundations strengthen our conviction that the near-term outlook for the economy remains bright,” Michael Pearce, deputy chief U.S. economist at Oxford Economics, told Reuters. “That should eventually help drive a reacceleration in the pace of hiring and help keep labor-market conditions solid over the coming year or two. That is one factor that will help convince the Fed to slow the pace of rate cuts next year.”
Inflation rose slightly in August. The Personal Consumption Expenditures Price Index climbed 0.1% after a 0.2% increase in July. For the 12-month period through August, the index rose 2.2%, the smallest year-over-year gain since February 2021. The core PCE index, which excludes the volatile food and energy segments, also rose by 0.1% after a 0.2% gain in July. In the 12-month period through August, core inflation was up 2.7%. The PCE is the Fed’s preferred inflation gauge. The central bank is trying to get inflation down to 2%.
The Conference Board said its Leading Economic Index inched lower in August, falling 0.2%, to 100.2, after an 0.6% drop in July. “In August, the U.S. LEI remained on a downward trajectory and posted its sixth consecutive monthly decline,” Justyna Zabinska-La Monica, senior manager, business cycle indicators, at The Conference Board, stated in a press release. “The erosion continued to be driven by new orders, which recorded its lowest value since May 2023. A negative interest rate spread, persistently gloomy consumer expectations of future business conditions, and lower stock prices after the early-August financial market tumult also weighed on the index.
“Overall, the LEI continued to signal headwinds to economic growth ahead,” Zabinska-La Monica added. “The Conference Board expects U.S. real GDP growth to lose momentum in the second half of this year as higher prices, elevated interest rates and mounting debt erode domestic demand. However, in the Fed’s September 2024 Summary of Economic Projections, policymakers suggested 100 basis points of interest rate cuts are likely by the end of this year, which should lower borrowing costs and support stronger economic activity in 2025.”
The mood at the nation’s small businesses darkened in August after brightening the previous month. The National Federation of Independent Business said its Small Business Optimism Index fell 2.5 points, to 91.2. The result left the index below its historical average of 98 for the 32nd month in a row. Inflation remained the main problem for member business owners, as 24% termed it their most significant issue.
“The mood on Main Street worsened in August, despite last month’s gains,” NFIB chief economist Bill Dunkelberg stated in a press release. “Historically high inflation remains the top issue for owners, as sales expectations plummet and cost pressures increase. Uncertainty among small-business owners continues to rise as expectations for future business conditions worsen.”
Twenty-one percent of members said labor quality was their top business problem, ranking just behind inflation. A seasonally adjusted 40% of owners reported job openings that they could not fill. Also seasonally adjusted, a net 33% of owners reported raising pay during the month.
Confidence among the nation’s home builders climbed a bit in September. The National Association of Home Builders said its NAHB/Wells Fargo Housing Market Index rose 2 points, to 41, improving for the first time in five months. “Thanks to lower interest rates, builders now have a positive view for future new-home sales for the first time since May 2024,” NAHB chairman Carl Harris, a custom home builder from Wichita, Kan., stated in a press release. “However, the cost of construction remains elevated, relative to household budgets, holding back some enthusiasm for current housing market conditions. Moreover, builders will face competition from rising existing-home inventory in many markets as the mortgage rate lock-in effect softens with lower mortgage rates.”
All three HMI component indexes were up in September. The index that charts current sales conditions rose by 1 point, to 45; the component that measures sales expectations in the next six months increased by 4 points, to 53; and the gauge that charts the traffic of prospective buyers rose by 2 points, to 27. Any number above 50 indicates that more builders view conditions as good rather than poor.
The Commerce Department said sales of new homes fell 4.7% in August, to a seasonally adjusted annual rate of 716,000, after an upwardly revised estimate of 751,000 during an unusually strong July. “Builder sentiment and future sales expectations are improving as the Federal Reserve begins a credit-easing cycle,” Harris, of the NAHB, stated in a press release. “However, due to the mortgage interest lock-in effect, declining interest rates will mean rising existing-home inventories and some additional new competition for home builders.”
“While a 7.8 months’ supply may be considered elevated in normal market conditions, there is currently only a 4.1 months’ supply of existing single-family homes on the market,” NAHB chief economist Robert Dietz added in a statement. “Combined, new and existing total months’ supply remains below historic norms at approximately 4.7, although this measure is expected to increase as more home sellers test the market in the months ahead.”
The median new-home sale price in August was $420,600, down 4.6% from a year earlier. The NAHB attributed the decline to builder price incentives. Existing-home sales were also lower in August. The National Association of Realtors said sales fell by 2.5%, to a seasonally adjusted annual rate of 3.86 million.
“Home sales were disappointing again in August, but the recent development of lower mortgage rates, coupled with increasing inventory, is a powerful combination that will provide the environment for sales to move higher in future months,” NAR chief economist Lawrence Yun stated in a press release. “The home-buying process, from the initial search to getting the house keys, typically takes several months.”
NAR said total housing inventory at the end of August was 1.35 million units, up 0.7% from July and 22.7% from a year earlier. Unsold inventory in August was at a 4.2-month supply at the current sales pace. “The rise in inventory — and, more technically, the accompanying months’ supply — implies home buyers are in a much-improved position to find the right home, and at more favorable prices,” Yun added. “However, in areas where supply remains limited, like many markets in the Northeast, sellers still appear to hold the upper hand.”
