U.S. Consumer Spending and Confidence Drops in September

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U.S. consumer spending is facing a substantial slowdown as multiple factors converge.

The Bureau of Economic Analysis (BEA) released data illustrating a decline in U.S. consumer credit card spending on retail and food service (excluding gas stations). The percent difference in spending from the typical level (accounting for day of week, month, and annual trends) fell from 10.1% in August to 4% in September, highlighting a notable reduction.

This trend echoes BofA's recent data, revealing a 0.3% decrease in credit card spending in the week ending Sept. 23 compared to last year, and a continuous downward trend excluding auto and gas purchases.

The Conference Board’s consumer confidence index further highlights this, plunging to 103 in September from 108.7 in August, with future expectations at a worrisome 73.7. Readings below 80 historically precede a recession within a year. Retail giants like Target and Home Depot already report declining sales, accentuating the alarm.

What's Impacting the Drop?

Higher Fuel Prices: Increases in fuel prices are leading to elevated expenses for consumers, reducing discretionary spending.
Resumption of Student Loan Payments: The end of the student loan payment freeze is putting additional financial strain on consumers, leaving less room for other expenditures.
Anticipated Economic Slowdown: Concerns over a potential economic downturn are causing consumers to tighten their budgets.
Rising Interest Rates: Higher interest rates are making financing and credit more expensive, discouraging big-ticket purchases.

Despite the current labor market strength, economists anticipate a more considerable consumption and overall economic downturn for the rest of the year.

Sources: BEA | Yahoo Finance | Fitch Ratings