January Consumer Confidence

Confidence of America’s consumers according to the Conference Board  continued to fall in January after December’s upwardly revised but still declining reading of 66.7 (originally 65.1).  January’s decline of 8.1 to 58.6 puts this indicator at its worst level since fall 2011 when Congress was arguing over the debt limit. Sound familiar?  The setback also erased all of the indicator’s gain for 2012.

This time around Washington D.C. has given the consumer more to be concerned about than just the ceiling.  January was the month consumers experienced a drop in their disposable income after the temporary reduction in the Social Security withholding expired.  This probably influenced Americans’ feelings about the current situation.  Those describing business conditions as “good” fell to 16.7 percent from 17.2 percent in December.  Those saying the same conditions are “bad” increased to 27.4 percent from 26.3 to end 2012.  The number of people who feel jobs are “plentiful” declined and those saying they are “hard to get” increased.

The Beltway has also not come to terms with a way to avoid automatic cuts now scheduled to begin on March 1st after being postponed at the very end of 2012.  This may have contributed to the deterioration of consumer’s short-term outlook.  Those expecting business conditions to improve in the next six months fell to 15.4 percent from 18.1 percent.  However, those expecting conditions to worsen did manage a slight fall to 20.6 percent from 21.1 percent at year’s end.  Consumer’s outlook on the labor market soured as well.  Those anticipating more jobs in the coming months fell to 14.3 percent from 17.9 in December.  At least those expecting fewer jobs were virtually unchanged at 27 percent.

Consumers are not enthused with their current situation and do not have rosy expectations for our economy’s short-term potential.  The uncertainty coming from the nation’s capital is only serving to complicate this historically weak recovery following the Great Recession.  If there is a positive relationship between consumer attitudes and their spending habits, the recent decline in confidence is not constructive for the economy.    (by C. Cox)