Consumer Confidence Just Took a Plunge. Should You Be Worried About the Economy?

Broad economic conditions don't tend to impact consumers as much as personal economics. For example, unemployment might rise and consumer spending might decline. But that likely won't matter to you as much as an unexpected bill that has you raiding your emergency fund or racking up a balance on your credit card. 

That said, it's natural to want to have a pulse on how the economy is doing. And it's natural to worry when indicators are pointing to a downturn.

Right now, unemployment is low and the labor market is strong. Despite that, consumer confidence has taken a hit in recent months. 

The Conference Board's Consumer Confidence Index® declined in October to 102.6, down from 104.3 in September. That marks three consecutive months of decline. And it's an indication that Americans aren't feeling wonderful about the economy.

Why the pessimism?

There are a few reasons why Americans' economic outlook may not be so rosy. First, September and October were fairly volatile months for the stock market, so some people may have seen the value of their investment portfolios decline. That's always unsettling.

Also, borrowing is very expensive in the wake of a series of rate hikes by the Federal Reserve. The central bank opted to pause interest rate hikes at its Oct. 31-Nov. 1 meeting. However, consumers are still reeling from higher interest rates for products that range from credit cards to auto loans to just about everything in between. And that could explain their negative view. 

Don't stress, but do prepare

Right now, the economy is not exactly flashing warning signs of an impending recession. So that's the good news. But it still pays to set yourself up to withstand an economic downturn should that happen.

One of the best ways you can gear up for that is to pad your emergency savings. Aim to have enough cash in the bank to cover three months of essential expenses at a minimum. And if you can save beyond that, even better.

Another area to focus on is growing your job skills. That way, if layoff activity starts to increase, you can feel more confident in your ability to get another job.

Also, do your best to try to pay off expensive debt, like lingering credit card balances. Not having costly payments hanging over your head could make a recession (or, you know, life in general) far less stressful.

Though it's easy to see why consumers might feel less confident about the economy, the reality is that current conditions aren't dire by any means. In fact, it's fair to argue that the economy today is strong.

Following its last meeting, the Federal Reserve issued a statement saying, "Recent indicators suggest that economic activity expanded at a strong pace in the third quarter." So that might help you feel better about the economy. 

But if not, do your part to prepare for a downturn. Knowing you have more money in the bank, boosted job skills, and less debt might better do the trick of helping you sleep at night.