Slipping consumer confidence mirrors cooling in labor market

Summary

Consumer confidence remained range-bound in August at levels not typically associated with robust spending, but not linked with sharp pullbacks either. The trend descent in consumers' assessment of the present situation goes hand in hand with the cooling labor market.

Expectations remain elevated, present situation doesn't

Consumer confidence fell in August to 97.4 after an upward revision lifted the reading for July from an initial estimate of 97.2 to 98.7. In the absence of the revision, today's report would have been a slight improvement. Bottom line: consumers are more or less in the same holding pattern where they have been all summer—leery of tariffs and the potential for higher prices yet not quite sure whether to feel relief that broad price spikes have not yet materialized.

That leaves the level of confidence roughly at the midpoint between the 112.8 reading in November when spirits were high and the 85.7 reading in the wake of the Liberation Day announcements in April. The Conference board says 80 is the lower limit through which confidence must break to signal a coming recession. We are a far cry from that at 97.4. But we are also a long way from readings that stayed comfortably above 120 during the pre-pandemic years of Trump's first term in 2018 & 2019.

Expectations fell, but only slightly to 131.2; a number that suggests households are keeping a stiff upper lip. While hope springs eternal, ask consumers how things stand at the moment, and things do not look particularly encouraging. The present situation index fell for the third consecutive month and now stands at 131.2, just a hair above the 131.1 low reached in April.

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