There is an old saying in markets: follow the money.

Well, perhaps this week we should follow the consumer.

Because while Wall Street has been busy worrying about inflation, interest rates, oil, AI spending and everything else currently fighting for a seat at the economic dinner table, the American consumer has quietly started looking rather miserable.

US consumer confidence has fallen to its lowest level in around 12 years.

And that should probably get a little more attention.

The Conference Board’s Consumer Confidence Index fell 6.7 points in September to 81.9, its lowest level since April 2014. The Expectations Index also declined for a third consecutive month, with consumers becoming increasingly concerned about business conditions, employment and their own financial situation.

And what is bothering them?

Prices. Fuel costs. Interest rates. Employment.

In other words, rather a lot of the things that make everyday life more expensive.

Now, here’s where it gets interesting.

The US consumer has continued spending despite all this gloom. That resilience has helped keep the economy moving.

But confidence matters.

Because eventually the consumer has to make a decision:

Do I spend it, or do I keep it?

And if enough households decide that perhaps the money is safer sitting in the bank, the consequences can travel surprisingly quickly through the economy.

Less spending means less revenue for businesses.

Less revenue can mean less hiring.

And a weaker labour market can create even less confidence.

Suddenly, we have a rather unpleasant little economic feedback loop.

The irony is that markets have spent an enormous amount of time looking at the supply side of the economy, investment, technology, productivity and corporate spending ,while perhaps not paying enough attention to the person on the other side of the checkout counter.

Because the American consumer isn’t just another economic statistic.

The consumer is the customer.

And ultimately, somebody has to buy all those products, services and rather expensive AI-powered gadgets that everyone has been so excited about.

So perhaps the bigger question isn’t whether the US consumer is feeling confident today.

It’s how long they can continue spending when their confidence is telling them to be careful.

The economy may still look reasonably resilient on the surface.

But underneath it, the consumer is beginning to whisper something rather important.

“I’m not sure I fancy spending quite as much anymore.”

And when the American consumer starts tightening the purse strings, perhaps Wall Street should listen.

Because sometimes the most important economic warning isn’t coming from the trading floor.

It’s coming from the shopping aisle.

By James Trescothick
Head of Market Research and Market Analysis

Risk Disclaimer: This information is for educational purposes only and does not constitute investment advice. Financial markets involve risks, and past performance is not indicative of future results. Always conduct your own research and seek professional advice before making investment decisions.