U.S. Consumer Confidence Deteriorates, Led by Bleaker Expectations

The Conference Board Consumer Confidence Index deteriorated 5.1% to 120.2 during January (-3.3% y/y) from 126.6 in December, revised from 128.1. It was the lowest confidence level since July 2017, down 12.8% from the peak just three months ago. Expectations had been for a reading of 124.5 in the Action Economics Forecast Survey. The indexes in the report are based on 1985=100. During the past 10 years, there has been a 69% correlation between the level of consumer confidence and the y/y change in monthly real PCE.

Leading the overall decline was a 10.6% drop (-16.1% y/y) in the expectations component to the lowest level since October 2016. This measure was down by roughly one-quarter during the last three months. In contrast, the reading of confidence in current conditions eased just 0.2% (+9.6% y/y) and has moved just 1.9% lower since the August peak.

The decline in the expectations component was paced by a collapse in the business conditions reading, where just 16.0% of respondents expected an improvement, down ten points in the last three months. Expectations for improvement in the labor market soured to a 2016 low, down sharply in the last three months. Rounding out the deterioration in expectations was a collapse in the percentage of respondents expecting an improvement in income.

The deterioration in the reading of current economic conditions was led by a lessened 37.4% of respondents who felt that business conditions were good. That remained up, however, during the last twelve months. The labor market was deemed good as a higher 46.6% of respondents felt that jobs were plentiful, just off the 19-year high. Jobs were viewed as hard to get by just 12.9% of respondents, down from nearly 50% at the 2009 high.

The expected inflation rate in twelve months declined to 4.4%, the lowest reading since 2005 and down from the 5.0% high registered last July. Roughly two-thirds of respondents expected the recent rise in interest rates to continue, although that percentage was down slightly from the peak registered three months ago. A reduced one percent of respondents planned to buy a new home and a greatly lessened 47.7% planned to buy a major home appliance.

This month's deterioration in overall confidence was greatest amongst individuals aged 35-54 years old. Their confidence fell to nearly a two-year low and was down sharply in the last three months. Confidence amongst individuals under age 35 also fell sharply. Confidence amongst individuals over age 55 held fairly steady m/m after falling sharply at yearend.

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

Do Longer Expansions Lead to More Severe Recessions? from the Federal Reserve Bank of Cleveland is available here.