This time, this past November, the US Dollar (USD) took a record fall. The US Dollar Index (DXY) just broke below the key 100.00 psychological support barrier. The Conference Board’s Consumer Confidence Index took a major tumble to 88.7, down from a revised 95.5 in October. This significant drop represents a major defeat of consumer confidence and foreshadows an even more unnerving outlook for the state of our economy.
The DXY has fallen under 100.00, placing the dollar in a very delicate position. It’s currently testing its important 200-day Simple Moving Average (SMA) just below the 99.80 level. This ongoing depreciation of the USD is directly tied to our decreasing consumer confidence. It further complicates the economic picture as we prepare for the holiday shopping season.
Consumer Confidence Takes a Hit
The Conference Board’s Consumer Confidence Index dropped off a cliff this month, showing just how dire the current consumer sentiment is. As a result, the short-term index fell dramatically from a revised 94.6 down to 88.7. This decline represents the second lowest level we’ve reached since April.
Dana M. Peterson, Chief Economist for The Conference Board, noted a historic decline in consumer confidence. In November, it dropped to its second-lowest level seen since April after being at relatively flat levels for a number of months. This drop is not surprising, with consumers becoming increasingly negative about development opportunities and the availability of jobs in the coming months.
As consumers adjust their economic perception, all five components of the total index either reported a warning or were anemic. Peterson continued to unpack those numbers, saying, “Each of the five elements of the total index flagged or were weak. The bad news is that the Present Situation Index fell as consumers were less optimistic about current business and labor market conditions.”
Labor Market Concerns
This month, the labor market tightness measure suffered a double whammy. Specifically, it measures the difference between consumers who view jobs as being “plentiful” versus those who consider jobs to be “hard to get.” After a short-lived return to the positive territory in October, the differential fell once more in November, indicating an increasing apprehension regarding the availability of jobs.
This decline in confidence regarding the labor market tracks with increased fears about the economy in general. Inflation is skyrocketing, much higher than the Federal Reserve’s target of around 2%. This has led to increasing calls for changes in monetary policy. The Federal Reserve is charged with both achieving price stability and adapting to changing economic dynamics.
Implications for Future Economic Outlook
This drop in consumer sentiment has deep and lasting implications for the economy as we move forward. With consumers feeling less optimistic about business conditions six months from now, spending patterns may shift, potentially affecting various sectors during a critical time for retailers.
As inflation continues to increase, central banks are doing everything they can to control prices. All of a sudden they may have to significantly increase base lending rates to address runaway price inflation. These decisions will be important to watch as they may have a larger impact on boosting consumer confidence and increasing economic activity in the coming months.