U.S. consumer confidence slumps to lowest in nearly 12 years, increasing pressure on the dollar ahead of Fed decision.
U.S. consumer confidence resumed its decline in January, reflecting downbeat opinions regarding business and labor market conditions and family income.
Pessimism Grows: The results of a Conference Board survey showed that the headline consumer confidence index fell by 9.7 points to 84.5, marking the lowest reading since May 2014. The December reading was upwardly revised by 5.1 points to 94.2. Economists, on average, expected a reading of 90.6.
Conference Board’s Chief Economist Dana Peterson said, “Confidence collapsed in January, as consumer concerns about both the present situation and expectations for the future deepened.”
Source: Conference Board
The present situations index, calculated from consumers’ assessment of current business and labor market conditions, fell by 9.9 points to 113.7. Meanwhile, the Expectations Index, which is based on consumers’ short-term outlook for income, business, and labor market conditions, fell by 9.5 points to 65.1, well below the threshold of 80 that usually signals a recession ahead.
The Conference Board noted that consumers increasingly cited prices and inflation, specifically oil and gas, food, and grocery prices. Mentions of tariffs and trade, politics, the labor market, health/insurance and war also increased.
What Economists Say: LPL Financial Chief Economist Jeffrey Roach sees the plummeting confidence as a function of a faltering job market. A preliminary estimate of ADP’s National Employment report for the four weeks ended Jan. 3 showed average gains of 7,750 jobs per week, falling for the third straight week.
Consumers’ expectations for worsening business conditions may have been due to the geopolitical tensions, Roach said. “From Great to Good.” That could describe the economy as it pivots from strong growth to just good growth. But downside risks could be growing.”
The economist expects the unemployment rate to rise to 4.6% in the second quarter, with upside risks later in the year. He expects this to weigh on retail sales in the coming months.
Economist Mohamed El-Erian said the fall is in contrast to GDP growth surprising to the upside, fueled by the decoupling of growth from employment, as well as persistent anxiety over high prices. “America’s domestic economic paradox persists,” he added.
Dollar Sell-off Worsens: The Dollar Index fell to its lowest level in about four years amid the latest batch of weak data. However, risky bets such as equities and dollar-denominated commodities gained ground. All eyes are on the Federal Reserve’s rate decision due on Wednesday, with a pause decision now an almost foregone conclusion.
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