Worsening consumer sentiment might be among the biggest red flags in the economy right now, according to one CIO.
It’s hard to open a newspaper or turn on a TV without seeing an expert making grim predictions for why the US economy is teetering on the brink of recession. Top economists such as Mark Zandi have repeatedly emphasized that the US is on the brink, with just a few things holding back a downturn.
Even as delayed economic data is finally released and the economy moves on from the recent government shutdown, other experts say the data tells a grim story, particularly when it comes to the health of the consumers.
After the University of Michigan’s consumer sentiment survey dropped to one the lowest levels ever earlier this month, the Conference Board on Tuesday showed similar results from its survey. It’s confidence gauge fell to the lowest level since April, on a mix of inflation and labor market anxieties.
While few companies are hiring, many have opted to lay off significant chunks of their staff, leaving large groups without an income as the holiday season approaches. And according to multiple experts, confidence in the economy is reaching dangerously low levels.
“Consumer sentiment is at its lowest level ever,” stated Mark Malik, CIO of Siebert Financial. “Sentiment isn’t wobbling at the edges or drifting lazily lower. It has collapsed. It has broken through historical floors.”
Siebert added that the Federal Reserve needs to start paying attention to this trend before things worsen. He noted that, monetary policy, which is intended to stabilize prices, is not working as intended.
“When consumer sentiment across all cohorts is flashing deep red, that is not nothing. It means households feel squeezed. It means the labor market doesn’t feel as strong from the inside as the headline numbers suggest,” Malik added.
Tie Lasater, CEO of Lasater Capital, also sees waning sentiment as a warning sign that markets and economists should be paying attention.
“Historically, sentiment alone doesn’t cause recessions, but sharp, sustained collapses in confidence often precede or accompany economic slowdowns,” Lasater said. “When households lose confidence, they shift into defense.”
He added that when consumers adopt a defensive mindset, they scale back spending, negatively impacting businesses, and potentially spurring layoffs. The negative feedback loop reinforces the initial pessimism, pushing consumer sentiment down even further.
Noah Yosif, chief economist at the American Staffing Association who previously served at the Bureau of Labor Statistics, echoed the sentiments. He highlighted the concerning trend of employees at all levels exhibiting clear caution.
“Consumer sentiment is often a noisy predictor because feelings about the state of the economy vary substantially across different income levels and generations; so uniform pessimism across multiple demographics suggests a rare alignment of multiple economic pressures that cannot be dismissed as a temporary mood or isolated hardship,” he stated.