Weak Consumer Sentiment Persists Amid Job Anxiety

Weak Consumer Sentiment Persists Amid Job Anxiety

Consumer confidence in the United States is showing signs of strain, even as headline employment indicators remain relatively stable. While the labor market hasn't collapsed, a growing number of Americans are worrying about job availability and future economic prospects, and that concern is weighing on spending and sentiment.

According to recent data from the Conference Board, the consumer-confidence index for September 2025 dropped to 94.2 (from 97.8 in August), marking the lowest reading since April. MarketWatch+1 A key measure, the labor-market differential, which gauges the share of consumers who believe jobs are plentiful versus hard to get, has weakened for nine straight months and now sits at a multiyear low of 7.8. MarketWatch

Job Market Slackness: The Underlying Concern

While unemployment remains near historically low levels, underlying signals indicate a cooling in labor-market strength:

• The Federal Reserve Bank of New York reported that among consumers, 39.1% expect higher unemployment in a year, and only 44.9% believe they could find a new job if they lost their current one, the lowest such reading on record. Barron's

• Meanwhile, the Federal Reserve’s Beige Book noted increased layoffs and reduced demand for labor in several sectors, particularly among middle- and lower-income households. Reuters+1

Reflecting this unease, Michael Barr, Governor of the Federal Reserve, observed: “We need to be prepared for the possibility that the softening in the labor market will become something worse.” RetailWit

Why Sentiment Matters - Especially Now

Consumer sentiment is more than a mood indicator. It often serves as a leading signal for consumer spending, which represents roughly two-thirds of U.S. GDP. When sentiment dips, households tend to pull back on discretionary items, postpone major purchases, and adopt a more cautious posture, all of which can ripple through the economy.

Given the labor-market cautiousness, several implications are particularly relevant:

• Spending delays: Households may delay purchases of big-ticket items (cars, appliances, homes) until they feel more secure about their jobs.

• Shift in consumption patterns: Consumers may prioritize essentials, value and discounts, and reduce non-essential spending. Some retailers are already reporting that shoppers are trading down products or opting for less expensive alternatives.

• Feedback loop risk: If weak sentiment curbs spending, it could weaken business revenues, leading firms to delay hiring or investments, which in turn could worsen labor conditions, reinforcing the negative cycle.

The Fed’s Dilemma: Inflation vs. Employment

This dynamic places the Fed in a delicate position. On one hand, inflation has been moderating; on the other, labor-market worries are mounting. Governor Barr emphasized this tension: if the labor market shows signs of further deterioration, the Fed may need to pivot more rapidly toward easing policy. CUToday

Chair Jerome Powell echoed the caution, noting that while the economy may be on somewhat firmer footing, “there remains a bit of tension between labor-market data … we see very low levels of job creation, and yet people are spending.” Reuters

If sentiment continues to slip, the risk is that the labor market’s “softening” evolves into a sharper downturn, a scenario Fed officials are keen to avoid.

What This Means for Businesses & Consumers

• For Businesses: Companies should brace for higher consumer caution. This could manifest as slower retail traffic, longer sales cycles for major purchases, and increased sensitivity to pricing. Businesses may need to emphasize value, flexible financing, and clear messaging about job security and household budgets.

• For Consumers: While job prospects remain strong overall, individuals should heed the warning signs: maintaining a healthy emergency fund, avoiding over-leveraging, and distinguishing between “nice-to-have” and “must-have” expenditures can help navigate this period of uncertainty.

• For Policymakers: The decline in sentiment suggests that while inflation remains important, employment and confidence metrics may deserve more attention in upcoming policy decisions. A purely inflation-centric view may under-appreciate the social and economic costs of a weakening jobs outlook.
  

Consumers are uneasy. Hiring trends are showing cracks. And while nothing dramatic has collapsed yet, the accumulation of such signals suggests that the U.S. economy is entering a more uncertain chapter. As Governor Barr warned, “the softening in the labor market” could turn into “something worse.”

In this environment, confidence matters. And right now, it’s on shaky ground.