U.S. consumer confidence experienced a sharp and unexpected decline in September due to mounting concerns over the labor market, increasing speculation that the Federal Reserve might implement a consecutive 50-basis-point rate cut at its November meeting.

The index measured by The Conference Board fell from an upwardly revised 105.6 in August to 98.7 in September, missing expectations of 103.8.

“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, commented, adding that the monthly decline was the largest since August 2021.

Consumer Confidence Worsens As Labor Market, Inflation Conditions Turn Bleaker

Peterson highlighted that all five components of the index deteriorated, reflecting consumers’ negative assessments of both current business conditions and the labor market.

Consumers expressed more pessimism about future job availability and income prospects, with those aged 35 to 54 showing the sharpest decline in confidence. Among income groups, the largest drop occurred in households earning under $50,000 annually.

In terms of labor market views, 30.9% of consumers reported jobs as “plentiful” in September, down from 32.7% in August.

Those saying jobs were “hard to get” rose to 18.3%, up from 16.8%. Looking forward, 18.5% of consumers expected business conditions to improve, down from 19.1%, while 18.3% anticipated fewer job openings, up from 17%.

Inflation expectations also crept higher in September, with consumers expecting a 5.2% inflation rate over the next year, up from the prior month, though still well below the 7.9% peak in March 2022. Despite some declines in goods prices, mentions of inflation remained the top issue affecting consumers’ economic outlook.

Economist Reactions

Harris Financial Group managing partner Jamie Cox expressed concerns: “It’s never good to see consumer confidence fall this much. Consumers are clearly worried about global conflicts, the upcoming elections, and stubbornly high costs for food and credit.”

He added that another larger rate cut by Federal Reserve might be necessary. “A 50-basis-point cut seems more appropriate in light of these data.

Gina Bolvin, president of Bolvin Wealth Management Group, highlighted that consumer confidence plays a critical role in driving the economy, which relies heavily on consumer spending. “Confidence coming in lower than expected could trigger more market volatility, which typically spikes in late September,” Bolvin said.

She also explained that lower confidence may result in softer demand, which could help cool inflation. “In the long term, this could ease inflationary pressures, which is a positive for the consumer.”

Market Reactions Have Been Swift

The U.S. dollar index (DXY) dipped 0.3% at 11:00 a.m. in New York, and Treasury yields fell as investors raised their bets on a Federal Reserve rate cut.

The probability of a 50-basis-point rate cut in November rose to 58.1%, up from 53% a day earlier, according to the CME FedWatch tool.

The SPDR S&P 500 ETF Trust SPY stalled after hitting record highs on Thursday. Gold prices, tracked by the SPDR Gold Trust GLD, continued their ascent, propelled by fresh stimulus measures in China.

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