Consumer spending is expected to take a back seat in the coming quarters.
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Despite forecasts that inflation will slow further in the coming months, consumers have a lot of worries on their plate, mostly centered on the jobs market.
S&P Global Ratings chief U.S. and Canada economist Satyam Panday expects the U.S. economy to grow 2 percent in the fourth quarter of 2024, down from 3.1 percent in the same 2023 quarter. That will result in U.S. growth expanding 2.7 percent for 2024, and likely just 1.8 percent in 2025.
Panday sees uncertainty around both the degree of Fed easing and the outcome of the 2024 U.S. presidential election as key factors holding back on capital spending activity. He expects annual inflation to stabilize around 2 percent by 2025.
But it’s not all doom and gloom. Panday said the series of expected interest-rate cuts are more a proactive preventive measure to keep growth from slipping too far. More importantly, the probability of a recession starting over the next 12 months remains unchanged at 25 percent.
“With consumption still healthy, for now, near-term recession fears appear overblown,” the chief economist said.
Growth forecasts for 2026 and 2027 were revised up slightly as “potential growth has risen.”
Signs of weary consumers were reflected in the Conference Board’s Consumer Confidence Index for September. The Index fell to 98.7 from an upwardly revised 105.6 in August. The Present Situation Index, reflecting consumers’ assessment of current business and labor market conditions, fell by 10.3 points to 124.3. The Expectations Index—reflecting the short-term outlook for income, business, and labor market conditions—fell by 4.6 points to 81.7, but still above 80. A reading below the threshold of 80 typically indicates that a recession is ahead.
“Consumer confidence dropped in September to near the bottom of the narrow range that has prevailed over the past two years,” the Conference Board’s chief economist Dana M. Peterson said. “September’s decline was the largest since August 2021.”
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She noted that consumers’ assessment of current business conditions turned negative as views of the labor market softened, and consumers were also more pessimistic about future job prospects . They were also less positive about future business conditions and future income.
According to Conference Board data, the drop in confidence was steepest among consumers between ages 35 to 54, while those under 35 remain the most confident. Across income groups, consumers earning less than $50,000 experienced the largest decrease.
As for the jobs front, Peterson said the Index reflected consumer concerns that included fewer hours, slower payroll increases and fewer job openings , despite a healthy jobs market that has low unemployment, few layoffs and elevated wages.
One new question about services in September’s survey showed that consumers were still keen to travel and dine out.
Economists at Wells Fargo expect continued Fed easing of rates in the months ahead. And while labor concerns topped the list of consumer worries in September, the expectations for lower interest rates over the next year could pave the way for growing optimism in the months ahead. Higher rates—particularly on credit cards—have weighed on purchasing power, chipping away at household balance sheets. But when lower rates take hold, consumers could increase their buying plans, particularly for larger purchases that require financing. The Wells Fargo economists concluded in a report that there is “room for buying plans to increase and interest rate expectations to continue to decline in the months ahead.”
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