In December, U.S. consumer confidence tumbled for a fifth consecutive month. The newest numbers from the Conference Board are a direct reflection of this disturbing trend. The Consumer Confidence Index fell to 89.1, a decrease from 92.9 in November. This decline is a concerning omen of consumer sentiment as we move into the new year.
This has matched a relatively mild bearish pressure on the US Dollar Index. On Tuesday, in the American session, the index was at 98.05 last. That represented a 0.2% decline for the day. This negative turn creates uncertainty about the economy’s longer-term path. When consumer confidence is shaken, consumer response tendency is to closely guard their spending and investment dollars.
The Conference Board’s report highlighted that the Present Situation Index, which gauges consumers’ assessment of current business and labor market conditions, plummeted by 9.5 points to 116.8 in December. Such a drastic drop is an indication that the people answering our survey are not only unhappy with the current state of our economy.
Expectations Index held even at 70.7. This forward-looking index reflects consumers’ perceptions of their short-term expectations regarding income, business, and labor market conditions. This continued stability may indicate that consumers remain wary of stubbornly high inflation and interest rates impacting short-term economic conditions. That doesn’t mean they see a crash around the corner.
“The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—plummeted by 9.5 points to 116.8 in December,” – Conference Board
These contradictory signals create a confusing landscape for federal, state, and local policymakers as well as market analysts. This drop in confidence may result in lower consumer spending, which is essential given that consumer spending drives roughly three-quarters of economic growth. Moreover, the ongoing bearish trend in the dollar indicates that traders are moving to price in these softening economic fundamentals.
Consumers are continuing to face a tough economic environment. This should trigger debates about what policy changes would be appropriate by the Federal Reserve as it steers through these choppy waters. Economists will be looking very closely at the next report. They’re hoping to learn whether this is indeed a new trend, or if a tipping point is on the horizon.