The US Stock Market Takes a Dive on Weak Consumer Confidence Indices

The February release of the Consumer Confidence Index (CCI) and its sister index, the Consumer Sentiment Index (CSI), has sent shockwaves through the stock market, as investors took to selling off their shares. The decline in these indices comes on the heels of similar declines in previous months, sparking concerns about economic growth.

Understanding the CCI and CSI: The Current State of Affairs

The CCI survey tends to be more influenced by employment trends, while the CSI is more affected by inflation expectations. This month’s data paint a worrisome picture for both indices. Inflation expectations appear to have risen significantly, with concerns about rising costs impacting consumer confidence. Meanwhile, employment expectations took a hit, driven largely by decreased optimism about job openings in the coming months.

Employment Trends Drive Concerns About Economic Growth

The Present Situation component of the CCI, which serves as a snapshot of current economic performance, saw a slight dip but remains remarkably upbeat, considering its generally higher values compared to expectations. In contrast, expectations took a major hit this month due largely to dwindling optimism about the labor market.

Chart 1: Expectations Component – A Deteriorating Trend

• In February, there was a sizeable drop in expectations, indicating waning confidence among consumers.
• While present situation dipped, it remains strong and relatively higher than expectations.
• The ratio of present situation to expectations components suggests that while present situation is still upbeat, expectations remain volatile.

Chart 2: Present Situation Vs. Expectations – Confidence at an All-Time Low

• Both indices reveal low readings on a month-to-month basis, sparking concerns about economic stability.
• Partisanship seems evident, with Democrats exhibiting greater pessimism than Republicans in this survey.
• A review of past numbers and the current trends indicates why the labor market’s growth expectations declined substantially.

Chart 3: Job Availability – A Mixed Bag

• Jobs remain mostly available based on consumer responses (50.3% of respondents).
• The jobs-plentiful response stays high at 33.4, indicating a solid job market.
• Conversely, the jobs-hard-to-get response rose to 16.3%, suggesting some caution in the labor market.

Chart 4: Present Situation and Jobs Availability – A Strong Foundation

• Both indexes are highly correlated with each other and signal economic stability and growth.
• Current readings on both measures confirm a strong job market performance.

The Protests Against Layoffs Under Trump Are an Interesting Development

A closer look at the trends reveals that expectations about jobs available in six months declined heavily to 55.7% from its July peak of 68.8%. Simultaneously, "fewer jobs" expectations rose significantly from January’s numbers, signifying a potential shift towards pessimism.

Chart 5: Jobs Availability – A Shift Towards Pessimism

• In terms of job availability for the next six months, expectations have declined.
• Despite some increase in unemployment rate and jobless claims, this is primarily seen as a reflection of rising unemployment due to federal job cuts under President Trump.

A Strong Labor Market Amid Economic Volatility

The current numbers suggest that income growth remains steady with expectations, while those expecting higher incomes rose from 15.4% to 18.2%.

Chart 6: Income Growth – Expectations vs Reality

• Both sets of indices show strong and consistent trends, indicating stability.
• Steadily declining consumer spending due to rising inflation may have a more significant impact on income for years to come.

Consumer Confidence Across Different Income Ranges

February survey finds widespread declines in confidence by income ranges. In the low-income category, we observe drops as high as 14%.

Chart 7: Consumer Confidence – A Drop Across the Board

• From top to bottom, a more comprehensive review is necessary to evaluate overall market performance.
• It makes sense that both indices confirm extremely volatile trends.

Low Unemployment Rate and Jobless Claims Reflect Economic Stability

Both the jobs-hard-to-get series of CCI surveys are in sync with unemployment numbers and initial claims.

Chart 8: Jobs Harder to Get – An Indicator of Labor Market Strength

• Despite growing pessimism, job openings remain plentiful.
• We can confirm a strong labor market despite volatility across many indices.

Conclusion

With employment trends indicating steady growth for some time now, market investors have cause for concern. Volatility may be around every corner for the foreseeable future but one must look past month-to-month shifts to evaluate the bigger picture. The outlook appears stable with no major job availability threats yet, giving ample cause for consumers to maintain their confidence.

As always, please check the sources directly when reviewing this report as data and trends are subject to change before the next publication date.