Consumer Confidence Sees Abrupt Decline in January

Hopes of a sustained growth to the US economy cooled somewhat as consumer confidence showed an abrupt decline this morning. Instead of a 68.0 reading predicted by FactSet-surveyed economicts, the Conference Board showed the Consumer Confidence Index standing at 61.1. The index is based on a base reading of 100 from 1985. Lynn Franco, Director of the Conference Board Consumer Research Center said the index retreated for January, having clawed back up from a 40.9 reading in October of 2011. “Consumers' assessment of current business and labor market conditions turned more downbeat and is back to November 2011 levels. Regarding the short-term outlook, consumers are more upbeat about employment, but less optimistic about business conditions and their income prospects.“ says Franco. She believes recent increases in gasoline prices may have had consumers feeling a little less confident this month. A “very modest rebound” in gasoline prices was the only negative factor in January according to Paul Ashworth of Capital Economics. “U.S. consumers remain a riddle wrapped inside an enigma,” he told Housingwire, as he thought the negative reading for the month ignored stronger income growth, falling unemployment, rising equity prices and falling interest rates, which should have all but yielded the opposite in terms of consumer confidence. Yet, all the positive underlying factors Mr. Ashcroft references come with caveats. Although personal income rose in December, according to a government report on Monday, consumers spent less, saving all of their additional income. Falling unemployment, currently at 8.5 percent before new numbers are published this Friday, come on the back of millions of many long-term jobless abandoning the labor force. Equity prices have indeed shown gains, but that is mainly attributed to investors reacting to results from a context of very low expectations, and not necessarily to significantly improved fundamentals. As for the low interest rates, now promised to stay there through 2014, their persistently low levels are the last resort of a Federal Reserve that is quickly running out of levers to pull in order to jump-start the economic engine. For all the rap the Federal Reserve gets with its low interest rates and ill-reputed quantitative easing, individual consumers comprise a full 70-percent of all economic activity in U.S. When consumer confidence gets worse, like it did this month, they tend to conserve their funds instead of buying things like clothes, appliances or even health care. And that leads to less revenue for companies selling products and services, which in turn leads to lower employment that brings a further-lowered consumer confidence... and so on. The flogging will continue until morale improves.