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United States Consumer Confidence January 2019

United States: Consumer confidence falls again in January on deteriorating outlook

The Conference Board’s monthly consumer confidence index fell from a revised 126.6 in December (previously reported: 128.1) to 120.2 in January, missing market expectations of 124.3. January represented the third consecutive month of decline for the index, which tumbled precipitously from the near all-time high of 137.9 reached in October. Despite the drop, the index remained well above the 100-point threshold that separates consumer optimism from pessimism.

As in December, the fall in the headline index was mainly caused by another sharp drop in the forward-looking expectations index, which lost more than 10 points in January after falling over 13 points in December and is now firmly entrenched in pessimistic territory. Meanwhile, the present situation index was virtually unchanged in the month and remained near the series’ record high. The drop observed in the expectations index is particularly significant as it indicates a very sharp and growing discrepancy between consumers’ high level of optimism about the current state of the economy—supported in good part by a rock-solid labor market—and their increasingly bleak view of the future.

However, it also appears that the January print was affected by the recent bout of financial market volatility as well as the government shutdown which lasted until 25 January. Accordingly, the effect of these events on consumer confidence may at least be partially reversed in coming months as the initial shock subsides. According to Lynn Franco, senior director of economic indicators at The Conference Board, “shock events such as government shutdowns (i.e. 2013) tend to have sharp, but temporary, impacts on consumer confidence. Thus, it appears that this month’s decline is more the result of a temporary shock than a precursor to a significant slowdown in the coming months”.

Looking at the details, consumers’ perceptions of current business conditions marginally improved, while the labor differential—the difference between the percentage of respondents who state that jobs are plentiful and those who say that jobs are hard to get—also increased slightly from 33.3 in December to 33.7 in January. On the other hand, consumer sentiment about business conditions and the labor market in the next six months both deteriorated. Interestingly, consumers who were pessimistic about labor market prospects now outnumbered optimistic respondents in January.

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