U.S. consumer confidence dropped more than expected in September following another round of tit-for-tat tariff actions by the U.S. and China in the previous month, supporting the case for what analysts describe as further "precautionary" policy easing by the Federal Reserve later this year.
The Conference Board's headline consumer confidence index fell to 125.1 this month from August's revised reading of 134.2, coming in below the consensus estimate of 133.0 from economists polled by Econoday.
The present situation index, which gauges consumer sentiment on current business and labor market conditions, slid to 169.0 from 176.0 in August. The expectations index, which measures consumers' short-term outlook, declined to 95.8 from 106.4.
"The escalation in trade and tariff tensions in late August appears to have rattled consumers," said Lynn Franco, senior director of economic indicators at The Conference Board. "However, this pattern of uncertainty and volatility has persisted for much of the year and it appears confidence is plateauing."
Franco said consumer confidence could stay close to current levels in the coming months, but continued trade uncertainty may soon weaken consumers' confidence in U.S. economic growth.
In addition to trade tensions, recent equity market volatility and the spike in oil prices following attacks on Saudi Arabian oil facilities may have also hurt consumer confidence, according to James Knightley, chief international economist at ING.
"[T]he Fed will be understanding that the real source of strength in the U.S. economy – the consumer – needs protecting," Knightley said in a research note. "While the Fed hasn't signaled any clear appetite to cut rates further, evidence like we have seen today suggests further 'insurance' policy easing will come."
ING expects the Fed to announce interest rate cuts of 25 basis points each in December and in the first quarter of 2020.
In a divided decision, Fed officials recently lowered the bank's benchmark interest rate by 25 basis points, easing policy for the second time this year to stave off worries about a potential slowdown.
