Consumer sentiment declined in September to the lowest level in year as Americans anticipated a weaker economy in face of a global slowdown and turbulent financial markets.
The University of Michigan’s preliminary index dropped to 85.7, from 91.9 in August, the largest one-month decline since the end of 2012. Households were less upbeat about future growth in employment and wages than a few months earlier as 73 percent of respondents reported hearing news of negative economic developments.
Stock market jitters may be shaking some Americans’ confidence in the health of the economy, especially as nations abroad experience growth slowdowns. Sustained improvement in the labor market and low energy prices will help provide a buffer for consumer attitudes, which will garner the attention of U.S. central bankers as they consider raising interest rates as soon as next week.
“The turmoil in the markets will probably weigh on sentiment for a bit,” Jim O’Sullivan, chief U.S. economist at High Frequency economics in Valhalla, New York, said before the report. “People see their own wealth take a hit. Also people view the stock market as a bellwether for the economy to some extent.”
The median forecast in the Bloomberg survey of 67 economists called for a drop to 91.1. Forecasts ranged from 85 to 95.5. The 6.2 point monthly decline was the most since December 2012, when the government moved toward higher taxes and spending cuts to reduce the budget deficit.
The sentiment survey’s current conditions index, which measures Americans’ assessment of their personal finances, decreased to an 11-month low of 100.3 from a 105.1 reading in August. The measure of expectations six months from now fell to 76.4, the weakest in a year, from 83.4.
Americans expected an inflation rate of 2.9 percent in the next year, up from 2.8 percent in August. They expect prices to rise 2.8 percent over the next five to 10 years, compared with 2.7 percent the previous month.
“While the current strength in consumer spending is still likely to persist, the more lasting impact of recent events may be a heightened attentiveness to potential negative developments,” Richard Curtin, director of the Michigan Survey of Consumers, said in a statement.
Curtin held out the possibility that households would view an interest-rate increase next week by the Fed as adding to recent negative developments in global capital markets.
“If economic growth proceeds as widely anticipated, the small delay of a rate hike to October or December will not matter,” he said. “A September rate hike, however, may add some unnecessary risks to an otherwise positive outlook.”
Attitudes in September toward purchases of automobiles and other big-ticket items remained strong, especially among higher- income households, the report showed.
Another sentiment measure reflected the impact of the recent market correction. The Bloomberg Consumer Comfort index stalled last week as weaker perceptions about the buying climate offset more sanguine views of household balance sheets.
With the turmoil in global markets, consumers will need to see continued strength in the U.S. labor market in order to stay positive on the economy. They may take some comfort in the August employment figures, which showed the jobless rate fell to a fresh seven-year low and is now in the range that Federal Reserve officials consider full employment.
Meanwhile average hourly pay was flat at 2.2 percent last month, tracking within the same lackluster band that’s characterized the entire recovery. Fed officials will consider the jobs data as they debate whether the economy and financial markets are strong enough to withstand higher interest rates.
Falling energy prices should give households more disposable income to spend someplace other than the gas station, offering relief from the stagnant wages. The average price of a regular gallon of gasoline fell to $2.37 on Sept. 9, the lowest level since Feb. 25.
Stabilization in the stock market may also help buoy confidence among the households that hold such assets. Market instability as measured by the Chicago Board Options Exchange Volatility Index has moderated but remains elevated since China devalued the yuan on Aug. 11.
The S&P 500 index lost 6.3 percent in August, the worst month for the stocks gauge since May 2012. So far for September, it’s down 1 percent through Thursday.
That has companies such as Williams-Sonoma Inc. keeping an eye on how the turbulence might affect their business.
“It goes without saying that a significant and sustained pullback in the stock market could lead to a reduction in consumer confidence and impact the discretionary spending landscape,” Chief Executive Officer Laura Alber said on an Aug. 26 conference call, adding that she was still confident in the company’s ability to gain market share. “We’re watching the markets along with everyone else.”
© Copyright 2022 Bloomberg News. All rights reserved.