Preliminary results from a monthly survey indicate that American consumers are feeling pessimistic about the economy. The index measuring consumer sentiment dropped unexpectedly this month to 55.4 from 58.2 in August, reflecting rising inflation and deteriorating job prospects. September’s reading also indicates a 21% decline compared to a year ago, prior to President Donald Trump taking office and implementing tariffs on nearly all imports.
Joanne Hsu noted that in addition to inflation and the labor market, tariffs also remain a concern for consumers. “Trade policy remains highly salient to consumers, with about 60% of consumers providing unprompted comments about tariffs during interviews,” Hsu stated, highlighting that a similar trend was observed in the previous month. Economists surveyed, were expecting a slight enhancement in consumer sentiment compared to August. Even though sentiment is at levels close to historic lows in a survey dating back to the early 1950s, consumers are experiencing a slight improvement in their outlook on the economy compared to April and May, which coincided with Trump’s initial implementation of the so-called “reciprocal” tariffs, based on previous readings. The survey highlights a growing divide in the economy among different income classes, with higher-income Americans maintaining their spending habits and expressing greater optimism about economic conditions, while those in lower and middle-income brackets are reducing their expenditures and experiencing heightened concerns.
Although the economy is far from the conditions of the 1970s and 1980s, characterized by double-digit inflation and unemployment rates, recent data on employment and inflation has raised significant worries about stagflation – a scenario where economic growth slows considerably while inflation rises. Consumer prices increased by 0.4% last month, resulting in an annual inflation rate of 2.9%, as reported. Meanwhile, there’s an extensive list of recent data indicating a declining labor market. For instance, initial claims for unemployment benefits jumped last week to their peak level in four years. For the first time in four years, there are more individuals seeking employment than there are positions available for them. Additionally, the August employment report revealed that employers added only 22,000 new workers, while the unemployment rate increased to 4.3%, marking the highest level since 2021. The US economy experienced a loss of 13,000 workers in June, representing the first month since 2020 when layoffs exceeded new hires.
“Economic sentiment declined more than expected in September largely because Americans are fearful of losing their jobs,” Heather Long. This data set has effectively ensured that the Federal Reserve will lower interest rates at its upcoming monetary policy meeting, following a period of nearly a year of stable rates. Market participants are increasingly anticipating reductions at the next two gatherings this year, contributing to the surge in stock prices to unprecedented levels.