Consumer Confidence Falls to 12-Year Low as Fuel Costs Bite

Sentiment at its worst since 2014

American consumers are gloomier than they have been in more than a decade. The data on what they actually spend, though, shows a much sturdier picture. The gap between the two is the main economic story heading into the holiday season.

The Conference Board said its consumer confidence index fell 6.7 points in September to 81.9, down from 88.6 in August. That is the lowest reading since April 2014.1519 Economists surveyed by Dow Jones had expected 89.0, so the drop was much bigger than forecast.19 One outlet put the figure at 81.8, a minor gap that probably comes from rounding. Every other report agrees on a 6.7-point fall to a 12-year low.13

The weakness showed up in every part of the survey. The present situation index, which measures how consumers see business conditions and jobs today, fell from 117.2 to 109.3, its lowest since 2021.15 The expectations index, which looks six months ahead, fell from 69.5 to 63.6. That was its third monthly decline in a row.19 According to Conference Board chief economist Dana Peterson, consumers rated current business conditions as negative for the first time since 2024.19

Other surveys point the same way. The University of Michigan's sentiment index dropped to 48.1, down 7 points from a year earlier.11 Michigan also reported that consumers' views of their personal finances fell about 10% as worries about prices grew.13

Prices, especially fuel, are driving the gloom

All the reporting points to one cause: rising prices, led by energy. Peterson said that in the survey's write-in answers, mentions of inflation, the cost of goods and services, and oil and gas prices hit an all-time high.15 The Iran war, now past seven months, has pushed energy prices up, partly because Iran has restricted shipping through the Strait of Hormuz.14 Gasoline has averaged above $4 a gallon, and diesel is near record highs.15 On October 15, AAA's national diesel average was $6.32 a gallon, up from $3.66 a year earlier.25

The government data released in mid-October backs up what consumers are saying. Consumer prices rose 3.7% in the year to September, well above the Federal Reserve's 2% target.25 Producer prices, which track costs before they reach shoppers, rose 6.3% year over year. That is the biggest increase in almost four years, and gasoline rose 20% in September alone.25 Consumers' median expectation for inflation over the next 12 months rose to 5.1%.13

Groceries: cool on paper, still painful at the checkout

Groceries are the oddity in this inflation picture. The government's September report shows food-at-home prices up just 1.8% from a year earlier, less than half the overall inflation rate.2228 The reports disagree on the monthly change. ABC's coverage says grocery prices fell 0.1% on a seasonally adjusted basis.22 Agri-Pulse says they rose 0.1%.28 Either way, food bills were roughly flat for the month while fuel rose sharply.

Prices moved very differently across the store. Eggs are down more than 20% from a year ago as supply recovers from bird flu. Butter is down 10.3%.22 Seafood, by contrast, is up more than 6%, ground beef 5.4%, apples 7.5%, tomatoes 6.8%, and coffee more than 7%.22 As food economist David Ortega told Marketplace, households that don't buy eggs get nothing from cheaper eggs, while regular buyers of seafood are paying a lot more.26

The low headline number is unlikely to last. Wholesale food prices jumped 1.2% from August to September, the biggest monthly rise since February.25 Analysts expect diesel-heavy perishables, such as refrigerated produce and frozen foods that travel long distances, to lead the next increases.26 Shoppers are also still paying for the last price surge. Groceries cost about 30% more than before the pandemic, and wages have not kept pace.26 That helps explain why 67% of U.S. and Canadian shoppers in one August survey said they were very or extremely concerned about grocery costs.30

The UK is going through something similar. There, supermarket price inflation rose to 2.5% in the four weeks to October 4. Shoppers spent more than £250 million extra on promotions compared with a year earlier, and many said they were very worried about fuel costs.2129

Spending keeps going, but higher prices account for most of it

The economy has not slowed the way the surveys suggest it might. September retail sales rose 0.8%, beating forecasts, and spending at restaurants and bars rose 1.1%.25 Behind that figure is a 6.4% jump in gas station sales. Without gasoline, retail sales grew only 0.2%, and much of that reflects higher prices too.25 In practice, households are paying more for roughly the same amount of goods.

This looks like strain, not strength. Case Western Reserve economist Jonathan Ernest said falling savings rates suggest households are treating the present as the rainy day they had saved for. Food and fuel spending is rising because people have no choice, not because they feel better off.12 Inflation-adjusted weekly pay fell in September compared with a year earlier, the first such decline since May.25 Navy Federal Credit Union's Heather Long said consumers feel more squeezed now than they did during the 2020 pandemic.18

Spending has held up partly because it depends so heavily on the wealthy. Moody's Analytics estimates that the top fifth of households by income accounts for more than 60% of consumer spending.16 That is why one detail in the September survey matters. Households earning $125,000 to $150,000 had the steepest drop in confidence over the past six months.12 Bates College economist Paul Shea said this could be a real warning sign, because until now the decline had been mostly among low- and middle-income households.12 Other coverage says the September decline was spread across all ages, incomes, and regions.15 Both accounts can be true: the decline is broad, and it has recently reached the households whose spending has been propping up the economy.

Plans for big purchases are already weakening. Fewer consumers said they intend to buy cars, homes, or major appliances, a worrying sign for retailers going into the year-end season.15

Credit: under strain in places, not a crisis

If households are leaning on credit, credit data should show the first cracks. So far the picture is mixed. A widely shared statistic says 12.8% of credit card balances are 90 or more days past due. That number is real, but it comes from a "stock" measure inflated by old charged-off debt that lenders now keep reporting for much longer.2 The New York Fed's "flow" measure, which tracks newly delinquent debt, was 6.97% in the second quarter, barely changed from 6.93% a year earlier.8 At commercial banks, the 30-day card delinquency rate fell to 2.85%, down from a peak of 3.22% in mid-2024.9 VantageScore's August data showed delinquencies stable across most loan types.3

These figures look reassuring, but they have limits. Most of the credit data covers the period before the September energy spike and the Fed's rate hike. The improvement also partly reflects banks cutting off their riskiest borrowers.8 Serious auto loan delinquency rose to 3.00% in the second quarter.8 Card balances hit a record $1.263 trillion.8 The interest rate on cards that charge interest climbed to 22.36% in the third quarter.1 Stress is still concentrated among subprime and lower-income borrowers.2 One analysis noted that the recent improvement depended on unemployment staying near 4.1% and could reverse quickly if it rose.8

What the Fed may do next

The Federal Reserve raised its benchmark rate by a quarter point in September, to a range of 3.75% to 4%.11 More consumers now expect borrowing costs to rise: 68.4% anticipate higher rates over the next year.13 New York Fed President John Williams said there was no rush to raise rates again at the October 27–28 meeting.13 Minutes from the September meeting, however, show most officials think one more increase this year is probably needed.25

Overall, the evidence points to an economy running on job security and the spending of wealthier households, while median households feel steadily poorer. Spending is likely to stay positive for a while in nominal terms. That is mostly because of higher prices, not because people are buying more. The things to watch are signs that high-income households are pulling back, rising wholesale food costs reaching grocery shelves, and early delinquencies moving beyond subprime borrowers. If all three happen together, the drop in confidence could start to show up in actual spending.