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Consumer Confidence Falls, Concerns Rise Over Future Economic Growth

Consumers these days aren’t so confident about the future of U.S. economic growth.

The Conference Board’s Consumer Confidence Index fell to 120.2 from 126.6 in December, declining for the third consecutive month. Consumers indicated that current economic conditions remain favorable, and that’s why the Present Situation Index dipped ever so slightly to 169.6 from 169.9. But the six-month outlook appears to be the challenge for consumers, as they indicated pessimism about economic conditions. The Expectations Index, the component that measures short-term outlook for income, business and labor market conditions, dropped to 87.3 from 97.7 last month. The survey’s cutoff date for preliminary results was Jan. 17, before the U.S. government shutdown ended on Jan. 25. Lawmakers now have until Feb. 15 to find a solution to the border security issue.

Lynn Franco, senior director of economic indicators at The Conference Board, said financial market volatility and the government shutdown had impacted consumers.

“Shock events such as government shutdowns [for example, in 2013] tend to have sharp, but temporary, impacts on consumer confidence. Thus, it appears that this month’s decline is more the result of a temporary shock than a precursor to a significant slowdown in the coming months,” she said.

The decline in January’s reading was similar to the Jan. 18 University of Michigan Consumer Sentiment Index, which also showed a bit of pessimism in the consumer mindset. In that reading, the Consumer Sentiment Index fell to its lowest level since President Donald Trump was elected more than two years ago. The total Index fell to 110.0 from 116.1 in December, but it was the consumer expectations component that saw the biggest decline. That drop, also measuring short term expectations, fell to 78.3 from 87.0 in December, and represents the lowest level since October 2016.

Consumer confidence is seen as a good read on the consumer mindset, with higher confidence levels an indicator of willingness to spend. Consumer spending represents roughly two-thirds of the country’s gross domestic product. Viewed differently, consumption is 68 percent of the U.S. economy.

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It’s too early to tell if consumers in general are becoming more concerned about a deceleration in U.S. economic growth.

The Conference Board believes a significant slowdown is unlikely, attributing the pessimism instead to the government shutdown. But IHS Market economist David Deull cautioned: “Looking forward, although the government shutdown has ended, the temporary nature of the three-week funding agreement and the continued impasse on border security mean that uncertainty and political gridlock will persist for some time, continuing to weigh on consumer confidence.”

Nevertheless, consumers’ outlook in The Conference Board’s January report saw the labor markets as less favorable. Those who said they expect more jobs ahead fell to 14.7 percent from 16.6 percent, while those who said they expect fewer jobs rose to 16.5 percent from 14.6 percent. As for short-term income prospects, those who said they expect an improvement fell to 18.2 percent, from 22.4 percent.