A key measure of U.S. consumer confidence declined in September to a four-month low despite the fact that the U.S. economy added a surprisingly high 336,000 jobs. The Conference Board reported that its Consumer Confidence Index dropped to 103 from an upwardly revised 108.7 in August.
“Consumer confidence fell again in September 2023, marking two consecutive months of decline,” Dana Peterson, chief economist at The Conference Board, stated in a press release. “September’s disappointing headline number reflected another decline in the Expectations Index, as the Present Situation Index was little changed. Write-in responses showed that consumers continued to be preoccupied with rising prices in general, and for groceries and gasoline in particular.
“Consumers also expressed concerns about the political situation and higher interest rates,” Peterson added. “The decline in consumer confidence was evident across all age groups, and notably among consumers with household incomes of $50,000 or more. Expectations for the next six months tumbled back below the recession threshold of 80, reflecting less confidence about future business conditions, job availability and incomes. Consumers may be hearing more bad news about corporate earnings, while job openings are narrowing, and interest rates continue to rise — making big-ticket items more expensive.”
A separate indicator of consumer sentiment was only slightly lower in September. The University of Michigan reported that its Consumer Sentiment Index fell to 68.1 from 69.5 in August. “Consumer sentiment confirmed its early-month reading and was little changed [in September], slipping a mere 1.4 index points from August and remaining 16% higher than a year ago,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “A small decline in consumer expectations over their personal finances was offset by a modest improvement in expected business conditions.
“Consumers are understandably unsure about the trajectory of the economy, given multiple sources of uncertainty, for example over … the labor disputes in the auto industry,” Hsu added. “Until more information emerges about these developments, though, consumers have reserved judgment on whether economic conditions have materially changed from the past few months.”
Christopher Rupkey, chief economist at FWDBonds in New York, told Reuters: “Inflation is slowing, but prices are still higher than they were before the pandemic, and this is taking a toll on consumer confidence.”
The U.S. Department of Labor reported that the unemployment rate was 3.8% in September, unchanged from the previous month, and the job gain was well above the average monthly increase of 267,000 during the previous 12 months. The department also upwardly revised its job totals for July and August. It now says the economy added 236,000 jobs in July, up 79,000 from the previous figure, and it says 227,000 jobs were created in August, up 40,000 from what it had previously reported.
The federal government also reported that the leisure and hospitality sector added 96,000 jobs in September, government employment increased by 73,000, health care added 41,000, and employment in professional, scientific and technical services rose by 29,000.
George Mateyo, chief investment officer at Key Private Bank, told CNBC: “Slowdown? What slowdown? The U.S. labor market continues to exhibit amazing strength, with the number of new jobs created last month nearly twice as large as expected.”
Nick Bunker, economic research director at the jobs site Indeed, told The Washington Post: “Underlying this report is a labor market that is still incredibly resilient. I think it’s the sign of a labor market that has sustainable strength moving forward.”
The Labor Department also reported that average hourly earnings rose by seven cents, or 0.2% in September, to $33.88. Earnings rose by the same percentage in August. During the past 12 months, earnings have increased by 4.2%.
The U.S. Department of Commerce reported that consumer spending rose 0.4% in August. Personal income also rose 0.4%. “There is no sign of a major pullback in consumer spending that would signal an impending recession in these numbers, but definitely growing signs of stress as consumers increasingly struggle under the weight of rising energy prices and borrowing costs and moderating income growth,” Scott Anderson, chief U.S. economist at BMO Capital Markets in San Francisco, told Reuters.
Inflation rose in August, but only slightly. The Personal Consumption Expenditures Price Index, excluding the volatile food and energy categories, rose 0.1%, the smallest increase since November 2020. The so-called core PCE Price Index rose 3.9% on a year-over-year basis, marking the first time since June 2021 that the annual core PCE index was below 4%. The PCE is the Federal Reserve’s preferred inflation gauge.
The Conference Board reported that its Leading Economic Index declined by 0.4% in August, to 105.4, after a drop of 0.3% in July. “With August’s decline, the U.S. Leading Economic Index has now fallen for nearly a year and a half straight, indicating the economy is heading into a challenging growth period and possible recession over the next year,” Justyna Zabinska-La Monica, senior manager, business cycle indicators, at The Conference Board, stated in a press release.
“The leading index continued to be negatively impacted in August by weak new orders, deteriorating consumer expectations of business conditions, high interest rates and tight credit conditions,” she added. “All these factors suggest that going forward, economic activity probably will decelerate and experience a brief but mild contraction. The Conference Board forecasts real GDP will grow by 2.2% in 2023, and then fall to 0.8% in 2024.”
The federal government reported in late September that the economy grew 2.1% in the second quarter, even in the face of higher interest rates.
The mood at the nation’s small businesses darkened slightly in August. The National Federation of Independent Business reported that its Small Business Optimism index fell 0.6 points, to 91.3. The result marked the 20th consecutive month that the index has been below its 49-year average of 98.
“With small business owners’ views about future sales growth and business conditions discouraging, owners want to hire and make money now from strong consumer spending,” NFIB chief economist Bill Dunkelberg stated in a press release. “Inflation and the worker shortage continue to be the biggest obstacles for Main Street.” Twenty-three percent of member business owners said inflation was their most important business problem, up 2% from July.
Forty percent of owners reported job openings that were hard to fill, a figure that was down 2% from July, but that the federation said was still historically high. A net 36%, seasonally adjusted, said they raised pay in August, down 2% from the preceding month.
Confidence among the nation’s home builders sagged in September. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index fell five points, to 45, below what the association said was its key break-even measure of 50. It followed a six-point drop in August.
“The two-month decline in builder sentiment coincides with when mortgage rates jumped above 7% and significantly eroded buyer purchasing power,” NAHB chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala., stated in a press release. “And on the supply-side front, builders continue to grapple with shortages of construction workers, buildable lots and distribution transformers, which is further adding to housing affordability woes. Insurance cost and availability is also a growing concern for the housing sector.”
NAHB chief economist Robert Dietz added: “High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower. Putting into place policies that will allow builders to increase the housing supply is the best remedy to ease the nation’s housing affordability crisis and curb shelter inflation. Shelter inflation posted a 7.3% year-over-year gain in August, compared to an overall 3.7% consumer inflation reading.”
All three major HMI component indexes posted declines in September. The HMI index that gauges current sales conditions fell six points, to 51; the component that charts sales expectations in the next six months also fell six points, to 49; and the index that measures the traffic of prospective buyers fell five points, to 30. Any number above 50 indicates that more builders view conditions as good rather than poor.
The Commerce Department reported that sales of new homes fell 8.7% in August, to a seasonally adjusted average rate of 675,000, although the pace was up 5.8% from the same month a year earlier. “Builders continue to grapple with supply-side concerns in a market with poor levels of housing affordability,” Huey said. “Higher interest rates price out demand, as seen in August, but also increase the cost of financing for builder and developer loans, adding another hurdle for building.”
Dietz added: “Sales weakened in August with average mortgage rates above 7%. While some builders were able to offset that effect via mortgage rate buydowns, rates moved higher [in August], suggesting the pace of new-home sales will weaken further for September.”
The median sale price for a new home was $430,300, down about 2% from a year earlier. Existing-home sales also fell in August. The National Association of Realtors
reported that sales dipped 0.7%, to a seasonally adjusted annual rate of 4.04 million.
“Home sales have been stable for several months, neither rising nor falling in any meaningful way,” NAR chief economist Lawrence Yun stated in a press release. “Mortgage rate changes will have a big impact over the short run, while job gains will have a steady, positive impact over the long run. The South had a lighter decline in sales from a year ago due to greater regional job growth since coming out of the pandemic lockdown.”
The NAR also reported that the median existing-home price was $407,100, an increase of 3.9% from the same month a year earlier. “Home prices continue to march higher despite lower home sales,” Yun said. “Supply needs to essentially double to moderate home price gains.”
This article was originally published in the November 2023 issue.
