U.S. consumer confidence has experienced a significant downturn, reaching its lowest level in over 11 years in January. The Conference Board reported a substantial 9.7-point drop in its consumer confidence index, bringing it down to 84.5, a level not seen since May 2014. This decline is attributed to growing concerns about a sluggish labour market and escalating prices, potentially leading households to adopt more cautious spending habits. The index measures consumer attitudes and buying intentions, offering insights into economic trends.
The surprising decrease in confidence spanned across political affiliations, with independent voters expressing the most pessimism. This development may intensify pressure on President Trump to tackle what economists have termed an affordability crisis, which some attribute to his policies, including tariffs on imports. Some economists are particularly concerned because the slump coincides with weakening perceptions of the labour market, with consumers’ views on job availability being the poorest in nearly five years. The share of consumers viewing jobs as plentiful dropped to 23.9%, the lowest since February 2021.
Despite the weakening consumer confidence, economists anticipate that the Federal Reserve will maintain its current course and leave interest rates unchanged following its policy meeting. While the relationship between consumer confidence and spending has been inconsistent, the depth of the current decline raises concerns about a potential slowdown in spending. The survey revealed that fewer consumers are planning to purchase big-ticket items in the coming months, with vacation plans also declining and intentions to buy a home falling to a nine-month low.
Investors appeared unfazed by the decline in confidence, with stocks trading higher on Wall Street. The U.S. dollar weakened against a basket of currencies, and U.S. Treasury yields showed mixed results. Economists continue to monitor consumer behaviour closely, as it remains a crucial factor in gauging the overall health and direction of the American economy.
