Due to heightened concerns about the labor market and overall economic outlook, U.S. consumer confidence unexpectedly saw the largest drop in three years in September.

Data released by the World Business Federation on Tuesday showed that the U.S. consumer confidence index fell by 6.9 points to 98.7 in September, the largest decline since August 2021, a figure lower than the estimates of all economists surveyed.

Furthermore, an index measuring consumers' expectations for the next six months dropped to 81.7, while the current situation index fell to 124.3. The recent slowdown in the labor market, coupled with sustained high cost of living, is weighing on consumer confidence, pushing the index far below pre-pandemic levels, leading the Federal Reserve to make a significant 50 basis points rate cut last week.

Surveys show that the proportion of consumers who believe job opportunities are 'plentiful' dropped from 32.7% in August to 30.9%, the lowest level since March 2021. Around 18.3% of consumers state that jobs are 'hard to get', higher than the previous month's 16.8%.

Peter Peterson, Chief Economist of the World Business Federation, stated in a declaration: 'The deterioration of the main components of this index may reflect consumers' concerns about the labor market's uncertainties, reactions to reduced work hours, slowed wage growth, and fewer job vacancies, although the labor market is still fairly healthy.'

Peterson pointed out that although consumers still believe the possibility of an economic recession next year is low, the proportion of those who think the economy is already in recession has 'slightly increased'. In September, while consumers remain optimistic about their current and future financial situations, the optimism has somewhat waned.

Consumers are also not optimistic about inflation, with expectations for the next 12 months rising to 5.2%. Rising prices have become one of the most concerning economic issues in recent years. The last time the confidence index saw a larger drop, it was during a period of significant inflation increase, eventually reaching the highest level in over 40 years.

Nevertheless, they are still interested in traveling, dining out, and watching movies, which may help support consumer spending and economic expansion.

Federal Reserve Chairman Powell stated at a press conference that although the labor market is softening, it remains in a 'solid state', the overall economy is 'fundamentally sound', and there are no signs of a recession.

Forecasts from policymakers indicate that by the fourth quarter, the unemployment rate is expected to rise from the current 4.2% to 4.4%, and remain at this level until 2025, with most officials seeing upward risks to the unemployment rate.

Nationwide's senior economist Ben Ayers stated that the sharp decline in consumer confidence highlights increasing pressure on many households as the labor market weakens. However, the Fed's policy shift will drive down mortgage rates and other borrowing costs, potentially supporting future consumer sentiment and preventing an economic hard landing.

Furthermore, according to another survey, employers' reluctance to hire employees may have two reasons: the upcoming U.S. presidential election and uncertainty in interest rate policy. This means that once past November and if the Fed continues to lower interest rates, easing pressures on businesses of all sizes, hiring activities may rebound.

Editor/ping