Consumer Confidence Hits Two Year High
The Conference Board's Consumer Confidence Index® hit a two year high in January after climbing 6.8 points. The index increased to 114.8 from December's downwardly revised 108.0. This month's reading was lower than expected, falling short of the 115.0 forecast.
The Present Situation Index, which is based on consumers' assessment of current business and labor market conditions, rose to 161.3 in January from 147.2 in December. Meanwhile, the Expectations Index, which is based on consumers' short-term outlook for income, business, and labor market conditions, increased to 83.8 in January from 81.9 in December. Note that a level of 80 or below for the Expectations Index historically signals a recession within the next year.
“January’s increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead, and generally favorable employment conditions as companies continue to hoard labor,” said Dana Peterson, Chief Economist at The Conference Board. “The gain was seen across all age groups, but largest for consumers 55 and over. Likewise, confidence improved for all incomes groups except the very top; only households earning $125,000+ saw a slight dip. January’s write-in responses revealed that consumers remain concerned about rising prices although inflation expectations fell to a three-year low. Buying plans dipped in January, but consumers continued to rate their income and personal finances favorably currently and over the next six months. Consumers’ Perceived Likelihood of a US Recession over the Next 12 Months continued to gradually ease in January, consistent with an Expectations Index rising above 80.”
Peterson added: “Assessments of the present situation rose in January, buoyed by more positive views of business conditions and the employment situation. Furthermore, when asked to assess their current family financial conditions (a measure not included in calculating the Present Situation Index), the proportion reporting ‘good’ increased while those saying ‘bad’ fell. This suggests consumers are starting off the year in good spirits about their current finances.”
“Consumer expectations for the next six months increased slightly in January, due to receding pessimism around future business conditions, labor market, and income prospects. Expectations that interest rates will rise in the year ahead plummeted to just 41.5 percent. Consumers expecting stock prices to be higher in the year ahead retreated slightly after surging in December but remained near three-year highs. Average 12-month inflation expectations fell to 5.2 percent, the lowest since March 2020 (4.5 percent). Consumers’ views of their expected family financial situation, six months hence (not included in calculating the Expectations Index) were slightly more tempered in January but remained on net optimistic. On a month-to-month and six-month basis, buying plans for autos, homes, and big-ticket appliances declined slightly for all three categories.”
Background on the Consumer Confidence Index
The Conference Board Consumer Confidence Index measures the consumers attitudes and confidence in the economy, business conditions, and labor market, with higher readings indicating higher optimism. The general assumption is that when consumers are more optimistic they will spend more and stimulate economic growth. However, if consumers are pessimistic then spending will decline and the economy may slow down. The index is based on a 5 question survey, with 2 questions related to present conditions and 3 questions related to future expectations. The survey began in 1967 and was conducted every two months but changed to monthly reporting in 1977, which is where our data begins.