US Consumer Confidence Wanes With High Prices and the Cooling Job Market

The US economy is at a threshold right now. With some shifts of trend, there are some important things to look forward to in the upcoming months and be prepared for.

Nationwide High Prices and Low Consumption

With the interest rate being the lowest in a long while and the interest rate continuing to hike, average consumption is projected to be the lowest for the upcoming months. A side effect is the job market, which has fewer job offerings and has become more competitive, as the fewest people left their jobs for another opportunity last month in over a year.

Inflation

High prices are often associated with inflation, which occurs when the general level of prices for goods and services rises, reducing the purchasing power of consumers. Rising inflation is one of the direct ways to reduce consumer confidence, as people can feel their spending on everyday goods and services getting higher.

Fewer job openings and fewer quittings have a ripple effect, as there is less pressure to raise the salary to keep workers. In the short term, pay raises are welcomed for any employees, but on the company side, it can lead to upping the cost of the products or services to upset the higher-paid employees, which eventually leads to inflation.

Cost of Living

As one of the main effects of inflation, a higher cost of living is the direct cause of the waning of consumer confidence. With things like food and rent going up, and incoming not going up accordingly, the amount of money one can spend is obviously going to be less. This can lead to reduced economic activity and lower consumer confidence.

Gasoline prices are a good example, which has reached a peak national average of more than $5 a gallon, which was the number when gas prices hiked last year when Russia invaded Ukraine and the US stopped importing Russian oil.

Consumer Confidence Index

The Consumer Confidence Index (CCI) is an indicator that reflects consumer confidence. It combines consumers' evaluations of the current economic situation with their expectations for future economic trends and income levels.

For reference, CCI went to 106.1 in August from 114 in July, which is a significant drop in one month. It is an important leading indicator for predicting economic trends and consumption patterns.

Main Factors of Consumer Confidence

Consumer confidence is influenced by a variety of factors that are directly or indirectly related to the current job market. Knowing these factors is a good starting point to understand how to resolve the problem.

Interest Rates

Rising interest rates are an expected result of high inflation. People are well aware of the interest rate and likely going to drop their spending when the interest rate goes up. On the same note, the interest rate has been going up constantly during the year. If the interest rate continues to hike, it might lead to a recession.

Clogged Supply Chain

Supply chain disruptions, which the COVID-19 pandemic played a big role in, can result in shortages and increased prices for certain products, further impacting consumer sentiment.

Much of the clogged supply chains began in 2021: When ports, factories, and many other core businesses, were overwhelmed by the explosive economic rebound from the pandemic recession. This causes many shortages as well as price hikes on certain goods.

Job Market

Typically, people think a strong job market with low unemployment rates would boost consumer confidence.

From the recent jobs report from the government, employers added 170,000 jobs in the month of August. While this is a steady increase in isolation, it would be the smallest increase over the span of almost three years.

Government Policies

“So far, job openings have declined substantially without increasing unemployment — a highly welcome but historically unusual result that appears to reflect large excess demand for labor,” Powell said in a speech at the Fed’s annual conference, highlighting the unique situation that is present, “and this uncertainty underscores the need for agile policymaking.”

Government actions, such as fiscal stimulus measures or changes in regulations, can impact consumer confidence. Stimulus payments, for example, can temporarily boost confidence by providing consumers with extra disposable income.

Impact of High Prices and Cooling Job Market

Savings and Investment

When high prices and a cooling job market cast a shadow of uncertainty, consumers often shift their financial priorities toward saving and investment. This shift reflects a desire to build a financial safety net and prepare for potential economic challenges. As consumers save more and spend less, it can lead to a reduction in overall consumption and a decrease in economic activity. This cautious approach to spending can have a cascading effect on businesses, potentially leading to reduced revenue and job opportunities in certain sectors.

Consumer Sentiment

Consumer sentiment is closely tied to the perceptions and confidence levels of the general public, can play a pivotal role in influencing financial markets. As high prices and a cooling job market weigh on consumers' minds, their sentiment may turn more pessimistic. This shift in consumer sentiment is closely watched by investors, as it serves as an important indicator of future economic conditions. A decline in consumer confidence can lead to increased.

Conclusion

In summary, with interest rates hiking and inflation rising, average consumption is expected to go lower in the coming months. This is exacerbated by a more competitive job market, as fewer people are leaving their jobs for new opportunities. High inflation is also eroding consumer confidence, as it drives up the cost of living, leading to reduced economic activity.

In the face of high prices and a cooling job market, consumers are prioritizing savings and investment, resulting in reduced spending and economic activity. Consumer sentiment is closely monitored by investors, as it can influence financial markets. It is crucial to keep monitoring the economy which is in need of some quick policy making to make the right changes.