Consumer confidence fell to 109.3 in September
The Conference Board’s measure of consumer confidence fell to 109.3 in September, easily undershooting the consensus forecast for 115.0. The decline was the third in as many months since the index peaked at 128.9 in June.
As has been the case since early 2020, COVID-19 remains a central concern for U.S. consumers, most notably the late-summer surge of Delta variant cases. It’s not only the health risk that has consumers’ attention, but the disruptive effects on the availability of goods, the inflationary effects, and the potential for those to further complicate the economic outlook.
The good news is that daily COVID-19 cases peaked in early September and have fallen sharply over the past few weeks. If that trend holds, consumer confidence should begin to stabilize and would also bode well for spending on services as near-term health risk fades.
But there are challenges to the collective consumer mood that extend beyond health concerns. Inflation expectations remain elevated, although indications that year-on-year price gains may have peaked should help to ease anxiety about a more sustained surge in long-term inflation. In the near term though, outsized upward pressure on prices is likely to continue.
The one-two punch of higher prices and limited availability of a wide range of goods, from certain food supplies to consumer goods to houses, are likely to weigh on consumer spending in the coming months. It’s hard to buy what you can’t find, and it can be harder to justify discretionary spending when prices are surging.
The real question surrounds consumer expectations. If consumers believe that these issues are short term in nature, they may defer some discretionary spending. The risk is that the near-term outlook deteriorates further — that consumers believe shortages will become more acute or that inflation will remain elevated for an extended period. A darkening in expectations could lead to a temporary surge in consumer demand to stock up in anticipation of higher prices or limited supply of essential goods, temporarily exacerbating already-strained supplies and pushing prices even higher for those goods. For now, that’s not the case, but it’s a potential risk that can’t be completely discounted.
The bottom line? While some pandemic-related risks may be somewhat receding, inflation, the spotty availability of various goods, and the potential for consumer spending to slow remain near-term risks. The overall momentum in the economy could slow, but the risk of that momentum stalling out remains low.
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