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Economy in Brief

U.S. Consumer Confidence Stronger than Expected in January
by Sandy Batten  January 28, 2020

The Conference Board's Consumer Confidence Index rose a solid 3.4 points (2.7% m/m, 8.1% y/y) to 131.6 (1985=100) in January from an upwardly revised 128.2 in December (initially reported as 126.5). The Action Economics Forecast Survey had looked for an increase to 128.0. The January rise was the third consecutive monthly increase and the highest reading since last August. Over the past 20 years, there has been 70% correlation between the level of confidence and the y/y change in real consumer spending.

Both components of the headline index improved in January. The present situation index increased 2.8% m/m to 175.3. The expectations index rose 2.5% m/m to 102.5. Both readings were the highest since last August.

Within the present situation assessment, the share of respondents believing business conditions are good rose for the second consecutive month to 40.8%. Consumers continue to think that the job market is robust with the gap between those thinking jobs are plentiful and those thinking jobs are hard to get widening to 37.4%, just off the August reading of 38.3% which was the highest in the current expansion and the highest since 2000. This robustness should continue to underpin consumer spending. Indeed, consumer spending plans for both homes and major appliances rose in January. In contrast, plans to purchase an automobile slid slightly.

There was little change in the expectations for conditions six months from now. Overall business conditions are expected to be the "same" by 72.8% of respondents in January versus 72.5% in December. However, consumers are becoming less pessimistic. The percent expecting business conditions to worsen in the next six months fell to 8.4% in January from 8.8% December and 11.4% in November.

Inflation expectations remained modest with the inflation rate expected over the next 12 months edging up to 4.5% in January from 4.4% in December. Interest rates are expected to be little changed over the next 12 months (40.6% in January look for no change with percentages expecting increases and decreases each falling). Consumers generally expect equity prices to rise over the coming 12 months with 43.1% expecting an increase while only 22.2% look for a decrease.

The improvement in consumer confidence in January was concentrated in the 55 and over age group with confidence increasing to 135.1 in January from 126.2 in December. The January reading was the second highest in the current expansion. Confidence among those ages 35-54 fell to 125.9 in January from 127.9 in December. Confidence in this group has been generally declining since the middle of 2019. Confidence of those under 35 years old edged up to 134.4 in January from 133.1 in December, remaining well below its cycle peak of 154.0 reached last August.

The Consumer Confidence data are available in Haver's CBDB database. The total indexes appear in USECON, and the market expectations are in AS1REPNA.

Conference Board (SA, 1985=100) Jan Dec Nov Jan Y/Y % 2019 2018 2017
Consumer Confidence Index 131.6 128.2 126.8 8.1 128.2 130.1 120.5
   Present Situation 175.3 170.5 166.6 3.0 169.8 164.8 144.8
   Expectations 102.5 100.0 100.3 14.7 100.4 107.0 104.3
Consumer Confidence By Age Group
   Under 35 Years 134.4 133.1 118.9 5.9 133.8 133.7 130.2
   Aged 35-54 Years 125.9 127.9 124.2 2.0 130.5 132.2 123.5
   Over 55 Years 135.1 126.2 130.8 15.7 123.8 126.3 112.9
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