Consumer Confidence is Crashing

Consumers as less confident lately and for good reasons. The broad economy is slowing, the pandemic has not ended, and the extended unemployment benefits are gone. What hope they do have is there are nearly eleven million jobs openings according to the government but one in six of those jobs is a low-paying hospitality job.

Twice a month the University of Michigan attempts to determine consumer sentiment by surveying consumers on how they feel about current conditions, future expectations, and inflation expectations. The recent survey results are not optimistic.

The survey results for September indicate consumer confidence is at its pandemic lows, current conditions are quickly falling to their pandemic lows, and future expectations are slightly below their pandemic lows. The surveys show consumers are not confident at all.

The make matters worse, consumers who were surveyed said this was the worst time to buy a house, car or durable good since the 1980s. Consumers cited high prices or inflation expectations as the reason buying conditions are this bad.

When consumers feel less confident, they tend not to spend. Since consumer spending is seventy percent of the economy, crashing consumer sentiment could have serious repercussions for the broad economy. Due to the link between consumer spending and the economy, the markets are also interested in how consumers feel.

There is a relationship between stock prices, Treasury yields, and consumer confidence. Stock prices and Treasury yields tend to rise when consumers are more confident and both fall when consumers are less confident.

The stock market is hoping consumers will continue spending while the bond market is indicating incomes will not keep up with higher prices. The risks are high as the economy is likely to slip into a double-dip recession if confidence does not strongly rebound. For investors on both sides, how consumers feel in weeks to come will determine if stocks or bonds continue to rise.