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Economy in Brief

U.S. Consumer Confidence Backs Off
by Tom Moeller  January 31, 2017

The Conference Board Index of Consumer Confidence indicated that its headline consumer confidence index for January declined to 111.8, following its December rise to a 15-year high. Also, December's reading was revised down slightly to 113.3 from 113.7. The Action Economics Forecast Survey had looked for a modest decline to 113.0 in January. During the past thirty years, there has been a 70% correlation between the level of consumer confidence and the y/y change in real PCE.

The decline in confidence in January was due to a weakened expectations index which fell to 99.8 following a December surge to 106.4. The present situation reading strengthened to 129.7 and made up much of the prior month's decline to 123.5.

Respondents indicating that business conditions are "good" improved slightly to 29.2%, while those saying business conditions are "bad" fell to 16.1%. Respondents stating that jobs are "plentiful" increased to 27.4%, while those claiming jobs are "hard to get" fell to 21.5%. This change in views on labor market conditions led to a modest increase in the labor market differential (a reliable indicator of the unemployment rate) to 5.9 percentage points from 3.3 percentage points in January and was close to the high for the current expansion.

In contrast to consumers' views on the current environment, their outlook for both business and labor market conditions backpedaled following December's rise. The percentage expecting business conditions to improve over the next six months fell to 23.1% following a surge to 24.7 in December. For labor markets, the percentage expecting more jobs in the months ahead fell to 19.8% following a December jump. And the percentage of consumers expecting their incomes to rise fell to 18.0% and reversed virtually all of its December rise to 21.5%.

Expectations for the inflation rate in 12 months jumped to 4.9%, the highest level since September. Moreover, consumers are looking for more interest rate increases. The percentage expecting higher interest rates over the next twelve months surged to 72.2%, the highest reading in 12 months and a marked increase from 52.3% six months ago.

Deterioration in the headline index was due mostly to lessened optimism amongst the 35-54 years age group. Confidence among individuals over aged 55 slipped. Respondents under age 35 registered slightly improved confidence following a sharp December retrenchment.

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

Conference Board (SA, 1985=100) Jan Dec Nov Y/Y % 2016 2015 2014
Consumer Confidence Index 111.8 113.3 109.4 14.3 99.8 98.0 86.9
  Present Situation 129.7 123.5 132.0 11.2 120.6 111.7 87.4
  Expectations 99.8 106.4 94.4 17.0 86.1 88.8 86.6
Consumer Confidence By Age Group
  Under 35 Years 127.3 124.4 138.5 2.9 122.4 116.0 106.6
  Aged 35-54 Years 113.9 117.0 116.0 11.6 106.2 103.9 92.4
  Over 55 Years 102.1 103.7 90.7 22.9 84.6 84.1 73.8
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