Depending on which data you’re watching, U.S. consumers are either extremely resilient or reaching their breaking point after years of stubborn core inflation and the added pressure of rising gas prices due to the war with Iran.
Recently, the September reading of the Consumer Confidence Index published by The Conference Board showed that American confidence in the economy is starting to wane after softening in the preceding summer months.
Now, a survey from LSEG Data and Ipsos shared with TheStreet shows that consumer sentiment in October is at its lowest reading in 15 years, presenting a problem for retailers heading into the all-important holiday season.
Consumer confidence is lowest in more than a decade
The Consumer Sentiment Index for October is 45.2, its lowest reading since October 2011.
Just as concerning is the fact that the reading is 5.3 points lower than it was last month, marking the second-largest month-over-month decline on record.
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The only time the drop was worse was April 2020 as the world began to realize how serious the Covid pandemic was becoming and the index dropped 7.7 points.
“Overall consumer sentiment shows a steep decline this month. Consumers show double-digit drops in their purchasing comfort, and sharp drops in investing confidence and job security,” said Johnny Sawyer of Ipsos.
He also noted that the index had shown alternating gains and losses since June, but now sits more than eight points below its initial reading in January.
“American consumers showed much resilience throughout what has been an uncertain year,” Sawyer said. “However, it appears that the bottom has fallen out, as sentiment now sits at its lowest point in 15 years. It is likely that sentiment will continue to remain depressed until the broader economic environment improves.”
Investors should be worried as well
According to researchers, investors watching for signs of deterioration should start seeing it in the upcoming quarterly print, especially for retail and restaurant equities.
“The sharp deterioration in consumer confidence is also reflected in the retail earnings outlook,” said Jharonne Martis, director of consumer research at LSEG. While the retail and restaurant index showed 71.7% earnings growth in Q2, readings reflect a significantly slower 6.8% increase in Q3.
“The anticipated deceleration suggests consumer spending momentum is moderating following the summer holiday season, reinforcing concerns that weakening confidence and growing economic uncertainty may weigh on discretionary spending in the months ahead,” Martis said.
Overall consumer sentiment has declined sharply this month.
Consumer sentiment declines are widespread
According to the survey, consumer sentiment declined across all four sub-indices that the LSEG/Ipsos survey monitors.
The current and investment sub-indices posted the steepest declines, falling more than seven points each, their largest fall since April 2020. Their readings both now sit more than 10 points below their readings from a year ago.
The expectations sub-index is down 3.5 points month to month and is now 5.5 points below last year’s reading. In addition, the jobs sub-index fell 2.5 points this month and is now down 2.6 points from last year.
What does plunging consumer confidence mean for retail investors?
U.S. consumers are under a lot of pressure, no matter how you slice it.
Between the ongoing war with Iran that was only supposed to last a few weeks, fluctuating oil prices that are driven by social media posts from the president, and stubborn inflation that the government just can’t seem to get under control, consumers are feeling the effects of it all.
“Consumers’ write-in responses regarding factors affecting the economy were mostly pessimistic in September,” said Dana Peterson, chief economist for The Conference Board.
“References to prices, the high cost of goods and services, and oil and gas prices in particular, rose to new heights, reflecting September’s surge in fuel costs. Comments about war/conflict eased this month but remained elevated. Consumers also frequently cited politics, trade, and employment in their write-in responses, though to a lesser extent.”
All of that anxiety could mean trouble this holiday season. The U.S. consumer has shown resilience in the past, but now it appears to be getting harder to put on a brave face as conditions continue to deteriorate.
