U.S. consumer confidence slides to a trough: Business predicaments caught between political farce and inflation

Data released by the Conference Board on October 28th paints a worrying economic picture: the U.S. consumer confidence index dropped to 94.6 in October, marking the third consecutive month of decline. What is even more serious is that the expectations index, which reflects consumers' views on the outlook for the next six months, has plummeted to 71.5, significantly below the critical point of 80, which indicates a possible economic recession. Amid this pessimistic expectation, the consumer assessment index of the current situation has slightly risen to 129.3. This huge contrast between the current situation and expectations constitutes a true portrayal of the current US economy - beneath the surface of calm, there are undercurrents.

The US economy is presenting a peculiar binary opposition. On the surface, the current situation index rose slightly in October, and consumers' assessment of the job market even reached its highest point in nearly a year. However, beneath this thin layer of optimism lies a deep concern of consumers about the future. Stephanie Gishal, a senior economist at the Conference Board, pointed out the crux of the problem: all three components of the expectations index have weakened, indicating that consumers are slightly pessimistic about future job opportunities and business conditions, and optimism about income is also waning. This divergence between the current situation and expectations has exposed the vulnerability behind the "Goldilocks" narrative on the surface of the US economy.

The continuous decline in consumer confidence is not groundless but a direct response to a series of economic realities and political predicaments. Inflation remains the biggest concern for consumers, continuously eroding the purchasing power of ordinary families. Ironically, the persistence of the federal government's "shutdown" not only shakes consumers' confidence in economic stability but also directly undermines the integrity of economic data. Due to the government shutdown, the crucial September jobs report was not released as scheduled, leaving the Federal Reserve like a "blind fly" when formulating policies. This data black hole not only affects policy decisions but also intensifies market uncertainty.

A thorough analysis of the data from different income brackets reveals that the US consumer market is undergoing a silent split. October's data shows that the decline in confidence was mainly concentrated in households with an income of less than $75,000, while those with an income of over $200,000 actually became more optimistic. This differentiation reveals a harsh fact: the current consumption resilience is highly dependent on the wealth effect of high-income groups rather than the general improvement in labor income. For the vast majority of middle and low-income families, the economic pressure is even more real. Nearly one-third of them find it difficult to cope with an emergency expense of 2,000 US dollars within 30 days.

The U.S. consumer expectations index has remained below the key threshold of 80 for eight consecutive months, and this sustained weakness has issued a strong warning of a recession. Historical experience shows that such a prolonged period of low expectations often indicates an economic turning point. Meanwhile, the labor market has shown signs of slowing down. The latest government data indicates that the unemployment rate has risen to 4.3%, the highest level since October 2021. Many companies are in a predicament of "no recruitment, no dismissal", and they are cautious about expansion until the policy impact becomes clear. However, in contrast to this caution, some major US companies have recently announced large-scale layoffs. These seemingly contradictory phenomena collectively outline a highly uncertain economic outlook.

American economic policymakers are facing an unprecedented predicament. The political independence of the Federal Reserve has faced an unprecedented challenge. Trump publicly pressured the Federal Reserve and threatened its independence. In terms of fiscal policy, the prolonged shutdown of the federal government is no longer just a political farce but a real source of economic risk. The shutdown not only affected government services but also dealt a second blow to the economy by weakening consumer confidence. Looking ahead, the US economy is standing at a crossroads. Whether it will head for what is called a "soft landing" or fall into recession may depend on whether policymakers can restore the confidence of consumers and businesses.