The Conference Board's Consumer Confidence Index® dropped sharply in February, falling for a third straight month. The index decreased 7.0 points to 98.3 this month from January's upwardly revised 105.3. This was the steepest one month decline since August 2021 and the index's lowest level in eight months. This month's reading was worse than the 102.7 forecast.
The Present Situation Index, which is based on consumers' assessment of current business and labor market conditions, decreased from 139.9 in January to 136.5 in February. Meanwhile, the Expectations Index, which is based on consumers' short-term outlook for income, business, and labor market conditions, decreased from 86.2 in January to 72.9 in February. Note that a level of 80 or below for the Expectations Index historically signals a recession within the next year. This is the first time since June 2024 that the Expectations Index fell below this threshold.
“In February, consumer confidence registered the largest monthly decline since August 2021,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. “This is the third consecutive month on month decline, bringing the Index to the bottom of the range that has prevailed since 2022. Of the five components of the Index, only consumers’ assessment of present business conditions improved, albeit slightly. Views of current labor market conditions weakened. Consumers became pessimistic about future business conditions and less optimistic about future income. Pessimism about future employment prospects worsened and reached a ten-month high.”
Guichard added: “Average 12-month inflation expectations surged from 5.2% to 6% in February. This increase likely reflected a mix of factors, including sticky inflation but also the recent jump in prices of key household staples like eggs and the expected impact of tariffs. References to inflation and prices in general continue to rank high in write-in responses, but the focus shifted towards other topics. There was a sharp increase in the mentions of trade and tariffs, back to a level unseen since 2019. Most notably, comments on the current Administration and its policies dominated the responses.”
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.
