US consumers are less confident. But they shouldn’t be.

Consumer confidence in the United States dipped slightly in June, data released by the Conference Board on Tuesday showed. The Conference Board is a non-profit research group organization with over 1,000 public and private members.

The survey divided respondents into three age cohorts: under 35, 35-55, and over 55 years old.

The Conference Board’s consumer confidence index fell to 100.4, down from 101.3 in May but above the expectations of Reuters-polled economists. Despite the decline in confidence, the survey also showed fewer Americans now believe a recession will occur in the next 12 months.

The survey additionally reported that more Americans were planning a vacation or buying a house compared to April. Traditionally, spending and consumer confidence are not related to each other.

Most of the overall decline is attributed to the respondents aged 35 to 55. Young and elderly respondents, on the contrary, showed slightly better confidence compared to May. Overall, the most confident consumers remained those below 35 years of age earning more than $100,000/year.

“The mild decrease in confidence isn’t consequential and we think there are sufficient tailwinds to keep consumers spending,” said Oren Klachkin, financial market economist at Nationwide. “The economy is on a glide path to normalized conditions.”

Politics and interest rates

Declining confidence is just the latest indicator of slower economic activity in the United States in the current quarter. Previous economic data showed rising unemployment (although still close to record-low) and weaker housing construction in May.

Meanwhile, US inflation is dropping to lower-than-expected levels, signaling a weaker American consumer.

“Confidence remained within the same narrow range that’s held throughout the past two years, as strength in current labor market views continued to outweigh concerns about the future,” said the chief economist at the Conference Board Dana Peterson. “However, if material weaknesses in the labor market appear, confidence could weaken as the year progresses.”

This is all part of the Federal Reserve’s plan to slow the economy down and bring inflation to manageable levels.

However, it could also have the unintended effect of dipping the world’s largest economy into recession. In order to prevent it, the Federal Reserve must carefully balance the timing of rate cuts.

The Fed kept interest rates at a 23-year high of 5.25% in June. Given the current market conditions, analysts expect two rate cuts this year starting in September. This would also give a boost to President Joe Biden’s reelection campaign as it would mark the “official” victory over inflation.