US consumer confidence has dropped to a four-month low, with inflation expectations rising again

According to the consumer survey results from the University of Michigan, consumer confidence in the United States declined in September and reached its lowest level in four months. Americans' confidence in their wallets has dropped even further. The final value of the consumer confidence index in September was 48.1, a large decrease from 51.7 in August. Compared to January, this index has dropped by 15%.

Consumers' expectations for price increases over the next year rose to 4.6%, higher than 4.0% in August. Residents' concerns about high prices have not eased. The 12-month inflation expectation has risen sharply from 3.4% in February, which was before the US - Iran war. After remaining at 3.3% for three consecutive months, consumers' expectations for inflation over the next five years have also been raised to 3.4%.

The cost of gasoline, diesel and heating oil has increased, which will lead to higher household expenses. After transportation costs rise, the prices of food, daily necessities and services may also be affected by this transmission. Consumers' views on their current and future personal financial situations have weakened by about 10%. That is to say, not only are the present days difficult, but expectations for next year have also deteriorated.

There is concern that rising inflation will weaken household purchasing power. If wage growth does not keep up with the prices, household purchasing power will be further compressed. Being more careful with spending and finding it increasingly difficult to save money are combined, resulting in a decline in the confidence index. Trade frictions and rising borrowing costs have also added to the pressure. Mortgage interest rates are at a high level, and the burden of buying houses, purchasing cars, and repaying credit cards has increased.

Consumption is an important support for the US economy. A decline in confidence does not necessarily translate immediately into a reduction in spending, but it will affect purchase plans. Families may postpone buying cars, replacing appliances, renovating and traveling. The willingness to purchase some durable goods has slightly improved, but this does not fully represent optimism. Some people worry about future prices being higher, so they place orders in advance. This "buying out of fear of price increases" demand usually does not have the same persistence as the demand brought about by income improvement.

The Federal Reserve is in a dilemma. The resurgence of inflation expectations means that cutting interest rates too quickly might undermine the credibility of controlling prices. However, the weakening of consumer confidence and employment expectations limit the room for raising interest rates. Market pricing for rate cuts and hikes has fluctuated multiple times. If inflation data remains strong, the Federal Reserve may maintain high interest rates for a longer period. If employment and consumption decline, the policy focus will shift towards growth.

An increase in inflation expectations has a negative impact on bond prices. Long-term bond yields may remain high or even continue to rise. The rise in yields will increase the costs of mortgages, corporate bonds and consumer loans. If the Federal Reserve maintains a tight stance, the US dollar may gain support. However, the trend of the US dollar is also influenced by global growth and risk sentiment. If the expectation of a slowdown in the US economy strengthens, the strength of the US dollar may not persist indefinitely.

In an environment of high interest rates, corporate valuations become more sensitive. Growth stocks and high-valued sectors may face pressure as the cost of discounting future cash flows increases. Energy, finance and some value stocks may relatively resist the decline. If the slowdown in consumption spreads to retail, automobiles, dining and durable goods industries, the revenues of related companies may be affected. The market will pay more attention to whether the financial reports can still support the current prices.

The slowdown in US consumption will affect other countries through import demand. Export-oriented economies may face weakened orders. Fluctuations in energy prices will also alter the inflation and interest rate paths of different countries. For investors, the risk of betting in a single direction is increasing. The market may pay more attention to defensive assets, companies with stable cash flow, and inflation-protected assets.