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Consumer sentiment took a significant hit in September, recording the largest drop in over three years according to the Conference Board. The Consumer Confidence Index fell to 98.7 from 105.6 in August, marking the sharpest decline since August 2021. This decrease reflects growing concerns about jobs and business conditions among consumers. In comparison, the index stood at 132.6 in February 2020, just before the onset of the Covid pandemic.

All five components of the index saw declines, with the steepest decreases observed among individuals aged 35-54 and earning less than $50,000. Consumers’ perceptions of current business conditions turned negative, while views on the labor market softened. Pessimism was also observed regarding future labor market conditions, business conditions, and income prospects.

The last time such a significant drop in consumer confidence was recorded was during the early stages of a surge in Inflation that eventually reached its highest level in over 40 years. Stocks experienced brief losses following the release of the report, while Treasury yields dipped.

Apart from the overall decline in confidence, the Present Situation measure dropped by 10.3 points to 124.3, and the Expectations Index declined by 4.6 points to 81.7. A reading below 80 on the expectations index typically indicates a recession. Survey respondents expressed increasing concerns about jobs and Inflation.

The percentage of consumers viewing jobs as plentiful decreased, while the proportion of those finding jobs “hard to get” rose. In terms of Inflation, the 12-month outlook reached 5.2%, with worries about price hikes topping the list of economic concerns.

Despite a relatively low number of consumers predicting a recession in the next 12 months, there was a slight uptick in the percentage of individuals believing that the economy was already in a recession. This survey comes shortly after the Federal Reserve’s decision to cut benchmark Interest rates by 0.5%, citing improved Inflation outlook and concerns about a potential labor market slowdown. This marked the first rate cut in four years, double the customary quarter-point reduction.

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