The Consumer Confidence Index fell 8.3 points in December, the largest monthly decline since July 2015, the Conference Board reported on Thursday, driven by a significant falloff in consumer expectations.
Following a modest decline in November, the index now stands at 128.1, down from 136.4 in November. The index is based on a 1985 baseline of 100.
The Expectations Index, measuring consumers’ short-term outlook for income, business and labor market conditions, decreased to 99.1 from 112.3 last month. The Present Situation Index, measured by consumers’ assessment of current business and labor market conditions, dipped to 171.6 from 172.7 to 171.6.
“Expectations regarding job prospects and business conditions weakened, but still suggest that the economy will continue expanding at a solid pace in the short-term,” Lynn Franco, senior director of economic indicators at The Conference Board, said. “While consumers are ending 2018 on a strong note, back-to-back declines in expectations are reflective of an increasing concern that the pace of economic growth will begin moderating in the first half of 2019.”
David Deull, principal economist at IHS Markit, noted that the gap between the Expectations and the Present Situations Indexes widened to 72.5 points, its greatest margin since April 2001, “signaling that although consumers still have positive views on the present, they increasingly expect worse conditions going forward.”
Consumer assessment of current conditions declined slightly in December. The percentage of consumers saying business conditions were “good” decreased to 37.2 percent from 42 percent, while those claiming business conditions were “bad” increased to 11.3 percent from 10.7 percent.
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Consumers’ assessment of the labor market was mixed. Those claiming jobs are “plentiful” inched down to 46.2 percent from 46.8 percent, while those claiming jobs were “hard to get” fell to 11.6 percent from 12.6 percent.
Consumer optimism about the short-term future also fell in December. The percentage of consumers expecting business conditions to improve over the next six months decreased to 18.3 percent from 21.9 percent, while those expecting business conditions to worsen increased to 9.7 percent from 8.3 percent.
Consumers’ outlook for the labor market was less favorable, as well. The proportion expecting more jobs in the months ahead decreased to 16.6 percent from 22.7 percent, while those anticipating fewer jobs increased to 14.4 percent from 11.2 percent. As for their short-term income prospects, the percentage of consumers expecting an improvement declined to 22.4 percent from 23.2 percent, as the proportion expecting a decrease rose to 7.7 percent from 7.2 percent.
Deull said, “Looking ahead, if the government shutdown is prolonged with continued political bickering, consumer confidence could head further south. However, the Present Situation Index has held up firm so far and is more closely linked to current consumer spending.”