Why this economist is worried about the economy and labor market

Key Concepts

• Consumer Confidence
• Government Shutdown
• Financial Situation Assessment
• Discretionary Spending
• Labor Market Differential
• Unemployment Rate
• Demographic Differences (Age)
• Retail Sales
• Holiday Shopping Season

Consumer Confidence Decline in November

The discussion highlights a broad-based decline in consumer confidence in November, impacting expectations regarding jobs, incomes, and overall financial situations. This downturn is attributed, in part, to the ongoing government shutdown during most of November.

Financial Situation Assessment Weakens

A significant concern raised is the substantial fall in families' assessment of their own financial situations in November. This indicates that consumers are not feeling positive about their personal finances, independent of the broader economic indicators.

Reduced Discretionary Spending Plans

Consumers have reportedly cut back on spending plans for services, including amusement parks. This suggests a decline in discretionary spending intentions, which is a notable signal, especially heading into the holiday shopping season.

Labor Market Dynamics and Unemployment

The "labor market differential," calculated as the share of consumers reporting jobs as plentiful minus the share reporting them as hard to get, has decreased again in November after a slight uptick in October. This trend is concerning given the lack of official jobs data for October due to the shutdown.

• Labor Market Churn: The data suggests a continued lack of "churn" in the labor market, described as being "frozen." This implies a low rate of both layoffs and new hires.
• Unemployment Rate Correlation: The labor differential from the Conference Board survey shows a strong correlation with the unemployment rate. The consistent downward trend in the labor differential this year, despite the October blip, aligns with a persistent, albeit not significant, increase in the unemployment rate. This increase is linked to consumers' difficulty in finding jobs.

Demographic Differences in Confidence

Interesting demographic variations in confidence were observed:

• Younger Consumers (Under 35): Confidence is improving for this group, despite the general perception that they face challenges in securing jobs.
• Older Consumers (Over 55): Confidence is not improving for this demographic, which might be expected to feel more positive given potential market gains.

Broader Trend vs. Month-to-Month Fluctuations

While month-to-month fluctuations can be misleading, the overall trend points to lower confidence across various demographic groups and income levels. This suggests consumers are approaching the holiday shopping season with increased caution.

Intentions vs. Actual Spending

A key question is the reliability of stated spending intentions versus actual consumer behavior.

• In-Between Reality: The truth is likely a combination of stated concerns and actual actions. Consumers are indeed concerned about the labor market.
• Retail Sales Data: Recent retail sales data for Q3 was robust, indicating strong overall consumer spending in real terms for the quarter.
• End-of-Quarter Caution: However, towards the end of Q3, there was a noticeable caution from consumers, reflected in their actions of stepping back from some discretionary purchases. This is viewed as a concern for the upcoming holiday season.

Conclusion

The data presented indicates a weakening consumer sentiment in November, driven by concerns about personal financial situations and the labor market, exacerbated by the government shutdown. While overall Q3 retail sales were strong, a cautious approach to discretionary spending, particularly towards the end of the quarter, signals potential headwinds for the holiday shopping season. The persistent increase in the unemployment rate, correlated with declining labor market differentials, further underscores these concerns.