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Retreating Consumer Confidence Could Put Holiday in Jeopardy

Consumers are getting more cautious about the economy, and that could put the damper on their plans for holiday spending.

The Conference Board on Tuesday said that its Consumer Confidence Index fell for the third month in a row. The Index now stands at 109.3, down from 115.2 in August and representing a seven-month low. Both components of the Index saw declines. The Present Situation Index, measuring current business and labor market conditions, fell to 143.4 from 148.9 last month. The Expectations Index, which measures short-term outlook about six months out, declined to 86.6 from 92.8.

Lynn Franco, senior director of economic indicators at The Conference Board, believes that September’s reading dropped as the spread of Covid-19’s Delta variant impacted consumer optimism.

“Concerns about the state of the economy and short-term growth prospects deepened, while spending intentions for homes, autos, and major appliances all retreated again,” she said. “Short-term inflation concerns eased somewhat, but remain elevated. Consumer confidence is still high by historical levels—enough to support further growth in the near-term—but the Index has now fallen 19.6 points from the recent peak of 128.9 reached in June.”

One thing is clear, these back-to-back declines suggest that “consumers have grown more cautious and are likely to curtail spending going forward,” Franco concluded.

That could be bad news for retailers already struggling with the challenges of getting goods in stock for holiday amid supply chain disruptions. Jack Kleinhenz, chief economist at retail trade group the National Retail Federation, said in July that with suppliers adding surcharges to cover added costs as early as Nov. 1 and the existing supply chain bottlenecks, retailers are likely to encourage consumers to start their holiday shopping early as they did in October last year.

In fact, a survey from ParcelLab noted that nearly one in five, or 19 percent, consumers said that they’ve already started their holiday buying because of worries over shipping delays. And retailers have already begun hiring seasonal workers to help with an expected pick-up in online orders, along with related digital and in-store services.

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But retailers are also concerned about delays in getting their merchandise. Some fashion players have already expressed a willingness to cancel orders rather than risk marking down late-arriving product. But what about the goods that do arrive in time for holiday? Retailers could find that margins won’t be as good as in past quarters this year, especially if consumers pull back on their purse strings and higher than expected leftover inventory means more merchandise will need to be put on the discount racks. That could be the case if future consumer confidence surveys indicate a continued decline in optimism.

In September’s consumer confidence reading, only 19.3 percent said business conditions are “good,” down from 10.2 percent last month. While the number of consumers who said jobs are “plentiful” inched up to 55.9 percent from 55.6 percent, 13.4 percent said jobs are “hard to get,” up from 11.2 percent last month.

Looking ahead, only 21.5 percent of those surveyed said they expect business conditions to improve, down from 23.4 percent. They were also less optimistic about the short-term labor market outlook, with 21.5 percent of respondents stating they expect more jobs available in the months ahead, down from 23.1 percent. Moreover, 20.3 percent anticipate fewer jobs, up from 18 percent.

In addition, consumers weren’t that optimistic about their own short-term financial prospects. The number of respondents who said they expect their incomes to rise fell to 17.3 percent from 18.2 percent, while 11.5 percent said they expect their incomes to decline, up from 9.9 percent last month.

Economists at Wells Fargo Securities note there’s room for improvement in the coming months. With the wind-down of the war in Afghanistan, wildfires in the West and Hurricane Ida sweeping across the East recently, there was a lot weighing on consumers’ minds. Not helping is the looming limit in the debt ceiling.

The economists noted that consumers’ disheartened attitude surrounding the labor market recovery in the future was one of the main drivers of the third consecutive drop in expectations. They expect next week’s employment report to provide more insight on the state of the labor market, and whether it might be the start of a weaker trend.