Uncertainty. The single biggest downdraft on consumer confidence, or sentiment, depending on which measure you read, but they mean basically the same. And there is so much uncertainty right now, confidence is plummeting with what could be a profound effect on the economy.
Let me explain what has changed. If you read my columns regularly, you know that I place a great deal of weight on consumer confidence, and as I have said in the past, that shopper pushing the cart through Walmart represents 70 percent of America’s GDP. When inflation gripped the economy and the Fed was forced to rachet up interest rates at a nosebleed pace, the Chicken Littles of the economic world all wailed and gnashed their teeth, predicting a recession. I even wrote about how we might possibly will ourselves into a recession despite the key piece of evidence that I knew would keep the economy and GDP growing: the consumer didn’t stop spending.
Now that has all changed, swinging 180 degrees. The consumer was our safety net against the backdrop of high interest rates, and his or her spending kept us out of recession. But now the uncertainty created by the chaos over tariffs has triggered a dramatic swing in the way consumers see the future. I believe there is a real possibility that their wallets will continue to close tighter and tighter, with the effect of significantly slowing the economy.
The latest news at the end of March was unnerving: the headlines throughout the popular business press revealed that Americans’ expectations for the economy hit their lowest level in 12 years. Americans continue to sour on the U.S. economic outlook as uncertainty around the administration’s policies and higher prices weigh on consumer confidence.
KEY INDICATOR
The latest consumer confidence index reading from the Conference Board was 92.9 in March, below the 100.1 seen in February and the lowest level in more than four years. But most startling was the expectations index, which is based on consumers’ short-term outlook for income, business, and labor market conditions; it ticked down to 65.2 from 72.9, and remained below the threshold of 80, which typically signals a recession ahead, for the second straight month. That seems to suggest that all this uncertainty around the economic outlook is really starting to weigh on consumers’ assessment of how they will fare going forward.
The Conference Board noted in its release that of the five components that contribute to consumer confidence, only the respondents’ assessment of current labor market conditions moved higher in March. Future expectations were particularly dour: For the first time since 2023, consumers turned negative on the stock market outlook, with just 37.4 percent of respondents expecting stocks to rise over the next year. Meanwhile, those expecting a lower income in the next 12 months rose to 15.5 percent from 12.8 percent in February, marking the highest level of respondents expecting a lower income in the next year since November 2022.
All of this has shown weakening expectations for the economy among consumers. The growing market fear is that consumers feeling worse about the economic outlook could prompt more cautious spending. Having said that, some economists, including Federal Reserve Chair Jerome Powell, question whether readings in the soft survey data like the consumer confidence index will translate to a deterioration in the hard economic data like real consumer spending. He went on to say the Fed will be watching very carefully for signs of weakness in the real data. For now, economists have largely argued that while the overall growth outlook for the U.S. economy may now be weaker than initially thought coming into the year, there isn’t a clear sign of a significant slowdown. But believe me, the confidence numbers are nevertheless a very dark cloud on the economic horizon.
Make no mistake about it. If the consumer eases up on that shopping cart, it will translate into a slower construction economy. For now, let’s all cheer on the American consumer.