This month, consumer confidence fell more than expected as higher prices and higher interest rates make life less affordable.
The Conference Board, a nonprofit organization that publishes multiple indicators, announced Tuesday that the Consumer Confidence Index was at 106.1 for August, a notable decline from the downwardly revised 114 notched in July.
The index's baseline is set at 100, meaning that anything above that level represents some underlying surplus of consumer confidence, while anything below that can indicate economic anxiety — a bad sign.
The index is closely followed and measures the public's optimism toward the economy by gauging saving and spending trends. The present situation index (based on consumers’ views of the conditions of the current business and labor market) and the expectations index (based on consumers’ views of the short-term outlook on income, business, and the labor market) both fell as well.
“Consumer confidence fell in August 2023, erasing back-to-back increases in June and July,” Dana Peterson, the chief economist at the Conference Board, said. “August's disappointing headline number reflected dips in both the current conditions and expectations indexes. Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular.”
The decline in consumer confidence is more dramatic than most forecasters had expected, with the consensus among economists being that there would be just a slight pullback from July’s reading — showing that consumers are becoming increasingly burdened by lingering inflation, rising interest rates, and a labor market that is starting to show signs of slowing.
About 21% of consumers said business conditions were “good,” a number that is unchanged from July. Meanwhile, just over 17% said business conditions were “bad,” an uptick from the month before.
Some 40% of consumers said jobs were “plentiful,” down from 43.7% in July. Additionally, just over 14% of consumers said jobs were “hard to get,” up from July.
“One of the drivers for the drop in confidence in August was rising concern about the health of the labor market,” Sam Millette, a fixed income strategist for the Commonwealth Financial Network, said. “Consumers cited job lowered availability during the month as a headwind, and the larger than expected drop in job openings in July indicates that the consumers are reacting to the shifting labor landscape.”
The lower reading comes on the same day as the Bureau of Labor Statistics's most recent Job Openings and Labor Turnover Survey. The report found that the number of job openings in the United States decreased to 8.8 million in July, the lowest that number has been in more than two years.
Most economists had expected job openings to tick up a bit in July after tumbling the month before, although the JOLTS reading shows that labor market conditions are starting to soften a bit.
The Federal Reserve has been raising rates to drive inflation down, and the effort has been working, although inflation remains too high for the central bank’s liking, particularly core inflation, which is less volatile and strips out food and energy from the equation.
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Fed Chairman Jerome Powell has been careful to leave some wiggle room for the central bank and has declined to say definitively whether or not more interest rate hikes are in store for the Fed’s tightening cycle. The next Fed meeting is set for late September, and the Fed will be closely analyzing all of the labor market and inflation reports that are released before then.
The next test of the labor market’s strength is the much-anticipated August employment report, which is set to be released on Friday.