January 28, 2025
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The Conference Board reported that consumer confidence fell 5.5 points in January to 104.1 after having declined 3.2 points in December.
Chief Economist at the Conference Board, Dana Peterson, said “Consumer confidence has been moving sideways in a relatively stable, narrow range since 2022. January was no exception. The Index weakened for a second straight month, but still remained in that range, even if in the lower part. All five components of the Index deteriorated but consumers’ assessments of the present situation experienced the largest decline. Notably, views of current labor market conditions fell for the first time since September, while assessments of business conditions weakened for the second month in a row. Meanwhile, consumers were also less optimistic about future business conditions and, to a lesser extent, income. The return of pessimism about future employment prospects seen in December was confirmed in January.”
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. Trump is promising significant de-regulation early in his presidency. The stock market is at a record high level. Most other surveys of consumer confidence have been heading higher. And most economists expect GDP growth this year of 2.0-2,5%.
Given the magnitude of the earlier declines in confidence as well as the one in December and January one might have expected a sharp pullback in consumer spending. But that has not happened. Instead, real consumer spending has risen 2.9% in the past year and at a 3.7% 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 6.9% 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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