Consumer confidence in the United States took a sharp downturn in December as Americans expressed growing doubts about the economic outlook for the coming year.
The Conference Board’s consumer confidence index dropped by 8.1 points to 104.7 in December, falling short of the 113.2 forecast by economists surveyed by Bloomberg. This decline reflects heightened uncertainty among consumers about income, employment, and business conditions.
Largest decline since 2020
The expectations index, which measures short-term projections for income, business, and labour market conditions, plunged by 12.6 points to 81.1, marking its steepest month-on-month decline since November 2020. Notably, this figure teeters near the threshold of 80, a level often associated with an impending recession.
The market reaction was immediate, with stocks hitting session lows after the report’s release before recovering some losses later in the day.
Labour market optimism fades
While views on current labour market conditions improved in December, consistent with robust jobs data, expectations for the future dimmed. Dana Peterson, chief economist at the Conference Board, commented:
“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 in October and November.”
The survey found that 21.3% of respondents expected fewer job opportunities over the next six months, up from 17.9% in November. Additionally, expectations for falling incomes and deteriorating business conditions also rose, underscoring growing uncertainty.
Concerns over tariffs and policies
The potential impact of President-elect Donald Trump’s policies remained a significant concern for consumers in December. Mentions of “politics” and “tariffs” increased in the survey, with 46% of respondents expecting tariffs to raise the cost of living and 21% anticipating tariffs to create more jobs in the US.
Meanwhile, optimism about the stock market waned, with only 52.9% of consumers expecting higher stock prices in the next year, a drop from the record 57.2% seen in November.
Federal reserve adds to the uncertainty
The survey period concluded on December 16, prior to the Federal Reserve meeting last week, but its findings aligned with the uncertainty highlighted by Fed Chair Jerome Powell during his remarks. Powell acknowledged elevated ambiguity surrounding inflation and monetary policy, leading to a cautious tone that unsettled markets.
“It’s kind of common-sense thinking that when the path is uncertain, you go a little bit slower,” Powell explained, likening the central bank’s approach to driving on a foggy night or navigating a dark, furniture-filled room.
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Markets sold off following Powell’s remarks, which signalled a slower pace of interest rate cuts than previously anticipated. Powell’s repeated use of the term “uncertain” during the press conference further underscored the challenges facing policymakers.
Economic outlook for 2024
The Conference Board’s findings suggest that consumer sentiment is increasingly fragile as the US enters 2024. While labour market data remains strong, concerns about inflation, tariffs, and political uncertainty weigh heavily on public confidence.
Economists warn that the drop in the expectations index could foreshadow slower economic growth or even a recession. The index’s proximity to the recessionary threshold of 80 is a key indicator to watch in the months ahead.
The road ahead
As the Federal Reserve and the incoming administration navigate these challenges, policymakers face the delicate task of balancing inflation control with economic stability. For consumers, however, the immediate future remains clouded by doubt, with worries about job security, income, and rising costs taking centre stage.
The latest data highlights the growing divide between robust present conditions and pessimistic future expectations. Whether 2024 will bring clarity or further uncertainty remains to be seen, but for now, Americans are bracing for a potentially turbulent economic landscape.
