Is Consumer Confidence Signaling a Storm Ahead?

Consumer sentiment falling, fears about losing jobs, people think business conditions are worsening, household income expectations are declining, and inflation expectations are rising. What does all this mean?

Although I tend to be an optimist by nature, I am also a realist who analyzes data to make sound investment decisions. The above listed data points often act as a leading indicators of economic shifts. When confidence deteriorates across income levels, job security, and inflation expectations, it raises red flags about the future health of the economy.

In short, it appears that the warning lights on the dashboard are flashing. If consumer sentiment continues its downward trajectory, it could mark the beginning of a broader economic slowdown.

Consumer Confidence Is Weaker than During the 2008 Financial Crisis

The April survey of consumer sentiment from the University of Michigan shows the following:

Lets take a look at some charts.

https://www.apolloacademy.com/consumer-confidence-is-weaker-than-during-the-2008-financial-crisis/

First, lets look at consumer sentiment. Sources: University of Michigan, Haver Analytics, Apollo Chief Economist Consumer sentiment has declined sharply across both high-income (above $100,000) and lower-income households, reaching levels not seen since the Great Recession of 2008. When confidence drops across all income groups, it signals broad-based economic anxiety that can lead to reduced spending, lower investment, and slower economic growth.

Second, lets look at job anxiety. Sources: University of Michigan, Haver Analytics, Apollo Chief Economist There has been a sharp increase in the percentage of consumers who expect higher unemployment over the next 12 months—levels not seen since major recessions in 1980, 1991, 2008, and 2020. Such heightened concern about job loss can lead consumers to reduce spending, which in turn may slow economic growth and potentially trigger a recession Third, lets look at how people think business conditions are for the future. Sources: University of Michigan, Haver Analytics, Apollo Chief Economist

This chart shows that a record-high percentage of consumers expect business conditions to worsen over the next year, surpassing pessimism seen during previous recessions. When public confidence in the business environment collapses to this degree, it can lead to reduced consumer spending and corporate investment, increasing the risk of an economic downturn. Next, here is a picture of household income expectations. Sources: University of Michigan, Bloomberg, Apollo Chief Economist.

As you can see, this chart shows a sharp drop in households' expectations for income growth over the next year, reaching some of the lowest levels seen since the 2008 f inancial crisis. When people expect lower earnings, they often reduce spending and delay major purchases, which can weaken overall economic activity and stall recovery momentum.

Finally lets look at inflation expectations. Sources: University of Michigan, Haver Analytics, Apollo Chief Economist There has been a dramatic surge in both short-term (12-month) and long-term (5–10 year) inflation expectations, reaching the highest levels in over three decades. When consumers expect sustained inflation, it can lead to reduced purchasing power, distorted financial planning, and pressure on central banks to tighten monetary policy—potentially slowing economic growth.

It's important to note that not all indicators are flashing red. Recent data from the Conference Board shows that the Leading Economic Index (LEI), while still mixed, has stabilized in some areas—such as durable goods orders and manufacturing new orders. The labor market remains resilient overall, with unemployment still near historic lows and job openings remaining elevated in several sectors. Additionally, consumer spending—particularly in services—continues to show strength, and corporate earnings in certain industries have surpassed expectations. These green shoots suggest that while risks are rising, the economy is not without momentum.

As always, a balanced approach—considering both cautionary signals and positive developments—is essential in making prudent investment decisions in an uncertain environment.

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