Stable Consumer Confidence Hides an E-Shaped Spending Divide

Consumer confidence barely moved in August, but the stability of the headline number conceals two trends that matter for spending: Americans feel better about the jobs they have today, while confidence about jobs, income and business conditions six months from now is weakening.

The Conference Board said in a Tuesday (Aug. 25) press release that its Consumer Confidence Index declined 0.8 points to 89.4 from 90.2 in July. Its Present Situation Index moved the other way, rising 6.8 points to 121.2 after three consecutive monthly declines. The Expectations Index fell 5.8 points to 68.2.

Employment drove much of the improvement in current conditions. Twenty-seven percent of consumers said jobs were plentiful, up from 24.4% in July, while 19.5% said jobs were hard to get, down from 21.7%.

“Perceptions of the current labor market improved,” Conference Board Chief Economist Dana M. Peterson said. But consumers looking six months ahead were “more pessimistic about business conditions and the labor market.”

Only 14.6% expected more jobs, down from 16.4%, while 26.1% expected fewer. The share expecting their income to rise declined to 17.6% from 19.5%, although income expectations remained positive overall.

Those findings line up closely with a divide PYMNTS Intelligence is seeing in its Consumer Expectations Index.

The August PCEI slipped 0.8 points to 54.8 and has remained within a relatively narrow 53-to-57 range for 11 months. Nine of its 11 measures declined in August. Personal job security was the exception, increasing to 80.6, though it remained 5 points below its spring peak.

The E-Shaped Economy Underneath the Average

The overall PCEI doesn’t show the same trajectory for every consumer.

PYMNTS’ E-shaped economy tracks three groups by financial lifestyle. Consumers who don’t live paycheck to paycheck have been moving higher, paycheck-to-paycheck consumers who don’t struggle with bills occupy the middle and have been gradually losing ground, while consumers struggling paycheck to paycheck have remained below the index’s neutral reading throughout the series. The gap between the top and bottom groups is now 2.2 points wider than it was last October.

August adds an important wrinkle. Consumers struggling paycheck to paycheck posted the largest improvement in personal job security, a 4.3-point increase. Yet their scores for current household finances, debt manageability and buying conditions all declined during the same month.

That is a concrete connection between Tuesday’s confidence data and the E-shaped economy. A better assessment of current job security can coexist with financial pressure, particularly for households with less savings and less room to absorb higher expenses.

The latest PCEI examines that financial capacity directly. Nineteen percent of respondents said their financial lifestyle had worsened compared with 12 months earlier, versus 7.1% saying it had improved. The report says roughly 7 in 10 remained in the same financial lifestyle.

Those year-ago comparisons need to be read carefully. August was the first fielding of the retrospective financial-lifestyle questions, and PYMNTS says the results rely on respondents’ recollection and are best treated as a snapshot rather than a longitudinal trend.

The August survey does, however, identify what distinguishes households reporting deterioration from those reporting stability. Among households whose financial lifestyle declined, 33% reported falling household income, compared with 21% whose lifestyle held steady. A large, unexpected expense was reported by 36% of the declining group versus 23% of those who held steady.

Savings were another separator. Twenty-six percent of households reporting deterioration said they could cover more than three months of expenses from savings, compared with 46% whose financial lifestyle held steady and 62% whose situation improved.

What the Confidence Split Means for Spending

Neither survey supports a broad call that consumers are pulling back.

The Conference Board found that consumers still planned to increase overall services spending during the next six months. Restaurants, bars and takeout; utilities; and streaming, internet and mobile services ranked among the leading categories. But planned spending weakened for movies, personal-travel hotels, airfare, amusement parks and museums, and intentions for most durable goods moderated slightly.

The PCEI adds another consideration: the means consumers have available when an expense arrives.

Among households facing an unexpected expense of at least $1,200, 56% of consumers who weren’t living paycheck to paycheck paid their largest expense with cash, checking or savings, compared with 36% of struggling paycheck-to-paycheck consumers. The struggling group was also more likely to carry a credit card balance over time, 35% versus 16%, and use BNPL, 15% versus 3.5%.

That doesn’t predict a spending contraction. It does show why the same confidence reading can have different implications across the E-shaped economy. Employment is providing support today, while expectations are weakening and households enter that environment with materially different financial cushions. Tuesday’s data show confidence holding up better in the present than in the future. PYMNTS’ data show why what happens next won’t land evenly across consumers.

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