Sentiment slides again, yet US consumers keep spending
The current economic landscape reveals conflicting signals as consumer sentiment declines while spending remains resilient, particularly among high-income households. Per the full note from ING, consumer confidence, as measured by the Conference Board, has slid to 81.9 in September from August's 88.6, marking a 12-year low. This unprecedented drop raises concerns over future consumption patterns, especially as rising fuel costs and job security fears weigh heavily on the broader population. However, it is noteworthy that affluent households continue to drive spending growth, largely buoyed by substantial asset gains over recent years.
What the desk is arguing
The desk argues that despite declining consumer confidence, spending dynamics are not uniformly negative. Historical correlations suggest that lower consumer sentiment typically precedes reduced spending, but currently, high-income households appear to be bolstering overall expenditures. Per the full note from ING, the labor market differential is at its weakest since March 2021, adding pressure on confidence levels.
Supporting this observation, the data indicates that households earning over $155,000, making up the top 20%, account for over 40% of total consumer spending. This concentration of spending among affluent groups suggests a divergence from the typical relationship between sentiment and spending, as lower-income households face significant challenges due to inflation and stagnant wage growth.
Where it sits in our coverage
Our consensus target for FX pairs remains at 1.075 with a range from 1.04 to 1.12. Firms are closely aligned with this assessment, including: - jpmorgan with a target of 1.10 for Mar26 - bofa with a target of 1.04 for Mar26
This view concurs with consensus sentiment, where the prevailing narrative suggests resilience in the spending power of higher-income groups despite overall pressure on consumer confidence. The desk’s call aligns towards the upper bound of the target spread.
How other firms see it
Most firms are currently aligned with the notion that high-income households will continue to support spending, insulating the economy from a sharper downturn. However, a few firms, such as bofa, express concerns that overall consumer sentiment could drastically undermine future growth, potentially leading to reduced spending from the middle and lower-income brackets.
This analysis plays into the broader implications for currency pairs like EUR/USD, where economic stability in the U.S. will be closely watched against European performance metrics. Additionally, the trajectory of the USD/JPY will remain a point of interest, particularly as the Bank of Japan continues to adjust its monetary policy in response to global economic influences.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Consumer confidence has dropped to a 12-year low, signaling heightened economic anxiety.
- 02High-income households continue to drive consumer spending, accounting for over 40% of total expenditures.
- 03The labor market differential indicates growing job security fears, further complicating the consumer sentiment landscape.
- 04The current divergence between sentiment and spending reflects changing economic conditions post-pandemic.
Market implications
Traders should monitor the behavior of high-income consumer spending as a potential support for the economy, particularly in upcoming economic releases. A breach of the 1.075 level could indicate a shift in sentiment towards a more adverse economic outlook.
Risks to this view
A significant reversal in consumer spending from high-income households would be a primary risk factor. Should inflation continue to outpace wage growth, or should job security deteriorate further, this could dampen overall consumption patterns and negatively impact economic forecasts.
Older quick take Quick take Published 15:32 United States Sentiment slides again, yet US consumers keep spending Consumer confidence fell further this month as worries about the cost of living and job security mount. Historically, these readings have been consistent with outright falls in spending, but high-income households, boosted by significant wealth gains, are keeping the show on the road Even as consumer confidence slides, US consumers continue to spend, especially high-income households Confidence falls further as job and inflation fears mount The Conference Board measure of consumer confidence has fallen to 81.9 in September from 88.6 in August (the consensus forecast was 89.0). The current conditions index fell 8 points and expectations dropped 6 points.
The headline reading was weaker than every forecast in the survey and leaves sentiment at a 12-year low. The details show anxiety about both the cost of living, mainly reflecting rising motor fuel costs, and job security, with the labour differential – the proportion of people saying jobs are plentiful less the proportion saying jobs are hard to get – being the weakest since March 2021. The chart below suggests the latest reading has historically been consistent with consumer spending falling, but clearly the relationship has weakened over the past couple of years.
Consumer confidence reflects the median household, which is concerned about weak income growth, job security and high prices. However, higher income households, boosted by years of substantial property and stock market gains, are spending strongly. Consumer confidence versus consumer spending Source: Macrobond, ING "> Source: Macrobond, ING Breaking this down, Bureau for Labor Statistics data suggests the top 20% of households by income (those making $155k or more based on 2024 numbers) account for more than 40% of all spending.
Moody's Analytics suggests the skew towards high-income households is even greater, with their data indicating that the top 20% are currently accounting for more than 60% of all consumer spending! In terms of wealth concentration and how this influences sentiment and spending, we know from Federal Reserve figures that the top 20% of households by income hold 70% of household wealth. Meanwhile, the bottom 60% of households by income, which obviously includes the median person, only hold 15% of the wealth of America.
Weak jobs turnover keeps wage pressures in check The JOLTS (Job openings and labour turnover statistics) data suggests the consumer bifurcation narrative is unlikely to change anytime soon. Job openings slid 256k to 7079k versus the 7228k consensus forecast. Meanwhile, the quits rate, which is the best lead indicator for wage growth, remained at 1.9%.
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