February 25, 2025
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The Conference Board reported that consumer confidence fell 7.0 points in February to 98.3,after declining 4.3 points in January and 3.2 points in December. After hitting a peak in November confidence has plunged as consumers worry about the inflationary impact of tariffs.
Senior Economist at the Conference Board, Stephanie Guichard, said, “In February, consumer confidence registered the largest monthly decline since August 2021. 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.”
Tariffs are making consumers nervous and their inflation expectations for coming years have been on the rise. At the same time their expectations for future growth seem to be shrinking and in the eyes of some a recession is possible late in the year. We have a hard time getting as pessimistic. The economy keeps cranking out new jobs although the pace of job creation is slowing down a bit. Trump is promising significant de-regulation early in his presidency. The stock market is near a record high level. And most economists expect GDP growth this year of 2.0-2,5%.
Given the magnitude of the earlier declines in confidence in the past thee months one might have expected a sharp pullback in consumer spending. But that has not happened. Instead, real consumer spending has risen 3.1% in the past year and at a 4.3% pace in the most recent 3-month period.. With real disposable income rising 2.4%, we expect consumer spending to climb by about 2.5% in 2025.
The current 4.3% funds rate should decline to 4.1% by the end of 2025. That should reduce mortgage rates from 6.9% currently to 6.2% by the end of 2025. All of that should tend to boost the pace of economic activity.
Confidence data reported by the Conference Board are roughly matched by the University of Michigan’s series on consumer sentiment. As shown in the chart below, trends in the two series are identical but there can be month-to-month deviations.
Stephen Slifer
NumberNomics
Charleston, SC
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