US consumer confidence fell sharply in September, hitting a more-than-decade low, as elevated energy prices and persistent inflation continued to erode households' real incomes, with willingness to buy homes, cars, and major appliances all contracting in tandem.

According to data released on Tuesday, the Conference Board's US consumer confidence index dropped 6.7 points to 81.9 in September, the lowest level since 2014 and below every forecast in a Bloomberg survey of economists.

The deterioration in sentiment was broad-based, affecting all age groups, income brackets, and regions. The survey covered the period from September 1 to September 23.

Meanwhile, the sub-index reflecting current economic conditions plunged nearly 8 points to its lowest since 2021, while the expectations gauge for the next six months also slid to a more-than-one-year low.

Inflation expectations intensified, with the share of respondents anticipating further rate increases rising to the highest in more than four years. Analysts warned that a fresh squeeze on real incomes would pose a major drag on economic growth.

Energy prices drive pessimism

Data from the American Automobile Association show that gasoline prices have climbed sharply above $4 per gallon amid the Iran war; US retail diesel prices are near record highs, and heating oil costs are also surging ahead of the winter.

Conference Board chief economist Dana Peterson said in a statement:

"In September, pessimism dominated consumers' written responses about factors affecting the economy. Mentions of high prices and the cost of goods and services, especially oil and gas prices, rose to new highs."

The report showed that consumers' purchasing plans generally contracted — the proportion of respondents planning to buy cars, homes, and various major appliances all declined, signaling that cost-of-living pressures are increasingly feeding through into actual spending decisions.

Job market optimism falls to multi-year low

The labor market outlook also cooled markedly.

The September survey showed that the share of consumers who said jobs were easy to find fell to its lowest since 2021, while the proportion who said jobs were hard to get rose accordingly, narrowing the gap between the two to the smallest in more than five and a half years. Economists view this gauge as an important reference for tracking the health of the job market.

Government data released the same day showed that job openings in August fell to a five-month low, corroborating the consumer survey results and indicating that the resilience of the labor market is weakening at the margin.

In addition, income expectations deteriorated in tandem. The share of respondents expecting their incomes to grow over the next six months fell to the lowest this year, while the proportion expecting incomes to decline rose to a more-than-one-year high.

Fed faces a dilemma over policy direction

Against these signs of weakening confidence, the market is divided over how much room the Federal Reserve has for further rate hikes. The Federal Open Market Committee (FOMC) announced a rate increase this month, after which several officials said borrowing costs should remain at higher levels.

However, Pantheon Macroeconomics economists Samuel Tombs and Oliver Allen noted in a research report:

"Although elevated energy prices are intensifying inflationary pressures in some areas, the fresh strain on real incomes will be a major drag on economic growth, requiring the FOMC to be cautious about further rate hikes."

It is worth noting that despite persistent pressure on consumer confidence, current consumer spending and the labor market as a whole still show some resilience. But with the confidence index hitting a 10-year low and purchase intentions broadly contracting, whether that resilience can last will be a key variable closely watched by the market.