US consumers getting more worried about job market, New York Fed says

The New York Fed's August Survey of Consumer Expectations revealed a notable increase in consumer anxiety regarding the job market, with the perceived probability of finding new employment after a job loss dropping to 44.9%, its lowest since June 2013. This sentiment aligns with recent government data showing decelerating job growth and a four-year high unemployment rate of 4.3%, alongside the Conference Board's Employment Trends Index falling to its lowest since early 2021. The deteriorating labor market outlook is bolstering expectations for a Federal Reserve interest rate cut next week, even as consumer inflation expectations remain relatively stable, potentially offering the Fed flexibility.

Analysis

Consumer sentiment regarding the U.S. labor market deteriorated significantly in August, according to the New York Federal Reserve's Survey of Consumer Expectations. The perceived probability of finding a new job after a loss plummeted to 44.9%, a low not seen since June 2013, while the expected probability of a future job loss rose to 14.5%, exceeding its 12-month average. This weakening sentiment is corroborated by hard economic data, including a deceleration in non-farm payroll growth to just 22,000 in August and an unemployment rate that has ticked up to a four-year high of 4.3%. Further supporting this negative outlook, the Conference Board's Employment Trends Index has fallen to its lowest reading since early 2021. This confluence of negative labor indicators is solidifying expectations for a Federal Reserve interest rate cut, with a quarter-point reduction widely anticipated at the upcoming meeting. The case for monetary easing is further strengthened by the survey's finding of stable medium- and long-term inflation expectations, which mitigates concerns that trade tariffs will fuel persistent price pressures and provides the Fed with greater flexibility to address the weakening employment picture.

Key Decisions for Investors

• The presented data strongly supports the case for an imminent Federal Reserve rate cut, likely 25 basis points, so investors should position for a lower short-term interest rate environment and anticipate a dovish tilt in monetary policy.
• Given the clear signs of a cooling labor market, including a four-year high unemployment rate and falling consumer confidence, investors should exercise caution with consumer-cyclical stocks and increase monitoring of retail sales and consumption data for signs of further weakness.
• While inflation expectations are currently stable, investors must monitor this metric closely, as any upward surprise driven by tariff impacts could constrain the Fed's ability to deliver further rate cuts, creating a challenging stagflationary environment for risk assets.