December 23, 2024
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The Conference Board reported that consumer confidence fell 8.1 points in December to 104.7 after having risen by rose 3.2 points in November..
Chief Economist at the Conference Board, Dana Peterson, said “The recent rebound in consumer confidence was not sustained in December as the Index dropped back to the middle of the range that has prevailed over the past two years. While weaker consumer assessments of the present situation and expectations contributed to the decline, the expectations component saw the sharpest drop. Consumer views of current labor market conditions continued to improve, consistent with recent jobs and unemployment data, but their assessment of business conditions weakened. Compared to last month, consumers in December were substantially less optimistic about future business conditions and incomes. Moreover, pessimism about future employment prospects returned after cautious optimism prevailed in October and November.” He added that the drop in confidence was led by consumers under 35 years old. Consumers under 35 became more confident.
The sharp drop in confidence is hard to understand. The economy keeps cranking out new jobs although the pace of job creation is slowing down a bit. And Trump is promising significant de-regulation early in his presidency. Most other surveys of consumer confidence have been heading higher. And most economists expect GDP growth next year of 2,0-2,5%.
Given the magnitude of the earlier declines in confidence as well as the one in December 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 3.4% pace in the most recent 3-month period.. With real disposable income rising 2.6%, we expect consumer spending to climb by somewhere between 2.5-3.0% kn 2025.
The current 4.3% funds rate should decline to 3.8% by the end of 2025. That should reduce mortgage rates from 6.8% currently to 5.9% 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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