Consumer Confidence Fell to a 12-Year Low. So Why Are Americans Still Spending?

The Conference Board said Tuesday that its consumer confidence index fell 6.7 points in September to 81.9, the lowest reading since 2014 and well short of the 89.2 that economists had penciled in. Hours earlier, the Labor Department reported that job openings slipped to 7.08 million in August, a five-month low. Put together, the surveys sketch a household sector bracing for worse. Yet the receipts disagree. Retail sales jumped in August, payrolls beat expectations, and the stock market is trading within reach of record highs. That gap is the argument now running through trading desks: whether the American consumer is finally cracking, or whether a gloomy mood has simply detached from what people actually do.

Sentiment cracked and hiring demand cooled together

The pessimistic read starts with how broad the September drop was. The Conference Board’s gauge of how consumers view current conditions turned negative for the first time in a year, and its expectations index, which tracks the outlook for the next six months, fell for a third straight month to 63.6. Dana Peterson, the board’s chief economist, said respondents expected both business conditions and the job market to weaken. The board’s measure of present conditions slid 7.9 points to 109.3, its weakest showing in more than a year. Inflation and jobs led the worries.

The labor data underneath the mood is softening in step. Openings have fallen to their lowest since spring, below what forecasters expected, and the trend has pointed down for most of the year. Fewer postings mean less room for workers to change jobs for a raise, and eventually less bargaining power. When people feel less secure about the next paycheck, they tend to pull back before the paycheck actually shrinks. The worry is that sentiment is an early warning the spending data has not caught up to yet.

The registers rang louder in August

The opposite read starts with what households did rather than what they told a pollster. Retail sales rose 1.2% in August, the Commerce Department reported, roughly double the gain economists expected and a rebound from a soft July. The control-group measure that feeds into gross domestic product climbed 1.4%, its best month in nearly a year, and the strength held even after adjusting for inflation. Online sales led. This was not a one-category fluke.

The broader growth picture backs it up. The economy added 162,000 jobs in August against forecasts of 55,000, and the unemployment rate held at 4.1%. The labor force expanded by 683,000 that month, a sign the jobs market was still pulling people in. The Atlanta Fed’s real-time model has third-quarter growth tracking around 5%, a steep pickup from the 1.5% pace of the spring, with consumer spending doing much of the work. History also counsels care with confidence surveys. Sentiment has swung hard in recent years without a matching move in outlays, as households told pollsters they felt terrible and kept buying anyway.

What the data shows

By late Tuesday morning the S&P 500 was off 0.21% at 7,667, the Dow down 0.64%, and the Nasdaq roughly flat. The Cboe Volatility Index sat at 16.1, subdued for a market supposedly staring down a weakening consumer. The 10-year Treasury yield held at 5.17%. The clearest tell was under the surface. In the latest session, consumer-discretionary shares were among the weakest corners of the market, down 1.4%, while defensive consumer-staples names finished higher. That is the rotation investors make when they want to stay invested but hedge against households trimming the extras. Housing offered a countersignal, with the S&P/Case-Shiller national price gauge up 2.5% from a year earlier, a touch firmer than expected.

What would settle it

The calendar settles more than the survey can. On Wednesday the Commerce Department releases personal spending for August, the single cleanest read on whether households kept buying as their mood soured; the same report carries the inflation gauge the Federal Reserve watches most closely. Thursday brings the ISM factory survey. The decisive number lands Friday, when the Labor Department reports September payrolls and the unemployment rate, the first look at hiring since confidence buckled. The Conference Board updates its index again in late October, and the coming round of earnings from large retailers and restaurant chains will show whether foot traffic followed the mood down or held with the spending.

For now, the country’s wallet and its worries tell different stories. One of them gives way. The next four days will show which.

This is a general-market summary for information only — not investment advice, and not a recommendation regarding any security.