Declining Consumer Confidence Casts a Dark Shadow Over U.S. Economy Ahead of Holidays

U.S. consumer confidence – a key proxy for consumer spending – declined for a fourth consecutive month in November.
US Consumer spending
Consumer sentiment is declining ahead of holiday shopping season. casting a dark shadow over the economy. | Image: Frederic J. BROWN / AFP
  • The Conference Board’s consumer confidence index declined to 125.5 in November from 126.1 in October.
  • The report adds to growing doubts about the health of the U.S. economy in the fourth quarter.
  • Forecasters at the Atlanta Fed are expecting a dismal quarter for the U.S. economy.

Americans continued to doubt the health of the economy and their finances in November, as consumer confidence fell for a fourth straight month, according to a report by the Conference Board.

The data paint a bleak picture of the U.S. economy heading into peak shopping season for most retailers.

Key Measure of Consumer Confidence Falls in November

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The Conference Board’s consumer confidence index came in at 125.5 in November, down from 126.1 the month before and confounding expectations of an increase to 126.6. The gauge of current conditions fell to 166.9 from 173.5.

Consumers’ opinion about the economy continued to diverge in November. The percentage of respondents claiming business conditions are “good” edged up to 40.2% from 39.7% in October. Those claiming business conditions are bad increased 2.8 percentage points to 13.8%.

Slightly less Americans said jobs are “plentiful,” while the percentage of those claiming employment is harder to find increased slightly.

Lynn Franco, the Conference Board’s senior director of economic indicators, said the decline was largely attributed to consumers’ perceptions about business and employment. She said:

The decline in the Present Situation Index suggests that economic growth in the final quarter of 2019 will remain weak. However, consumers’ short-term expectations improved modestly, and growth in early 2020 is likely to remain at around 2%.

What It Means for the U.S. Economy

Consumer sentiment isn’t a reliable indicator of economic growth, but it’s considered a decent proxy for consumer spending, which accounts for more than 70% of U.S. gross domestic product (GDP). That consumer confidence is declining ahead of the holiday season is problematic for several reasons.

For starters, American retailers rely heavily on holiday shopping. Christmas shopping accounts for 20% to 30% of retailers’ annual sales, according to the National Retail Federation (NRF). The seasonal boost comes without higher costs of doing business, making holidays an especially profitable time for companies that usually operate on razor thin margins.

To be sure, the Conference Board said declining consumer sentiment likely won’t impact holiday shopping, but a look at retail sales paints a slightly different picture. Receipts at retail stores fell 0.3% in September; despite bouncing back 0.3% in October, sales increased less than expected when stripping away automobile purchases.

US retail sales
Retail sales have shown weakness in recent months. | Chart: tradingeconomics.com

The end of 2019 is already shaping up to be the worst quarter for the economy under President Trump. The Atlanta Federal Reserve’s GDP tracker has pegged fourth-quarter growth at just 0.4%. That follows back-to-back quarters of disappointing growth.

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