Consumer Confidence Hits Two-Year High

Consumer confidence increased 6.8 points to 114.8 in January, the third consecutive month of increases and the highest reading seen since December 2021, according to the latest data from The Conference Board. 

“January’s increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead and generally favorable employment conditions as companies continue to hoard labor,” said Dana Peterson, chief economist at The Conference Board. “The gain was seen across all age groups, but largest for consumers 55 and over. Likewise, confidence improved for all incomes groups except the very top; only households earning $125,000+ saw a slight dip. January’s write-in responses revealed that consumers remain concerned about rising prices although inflation expectations fell to a three-year low. Buying plans dipped in January, but consumers continued to rate their income and personal finances favorably currently and over the next six months.”

The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—jumped from 147.2 to 161.3. For current business conditions, 22.5% of consumers said they were “good,” up from 21.1% last month. Meanwhile, 14.2% said business conditions were “bad,” down from 17.2% last month. For the labor market, 45.5% of consumers said jobs were “plentiful” (up from 40.4%), while 9.8% of consumers said jobs were “hard to get” (down from 13.1%).

“Assessments of the present situation rose in January, buoyed by more positive views of business conditions and the employment situation,” Peterson added. “Furthermore, when asked to assess their current family financial conditions (a measure not included in calculating the Present Situation Index), the proportion reporting ‘good’ increased while those saying ‘bad’ fell. This suggests consumers are starting off the year in good spirits about their current finances.”

The Expectations Index—based on consumers’ short-term outlook for income, business and labor market conditions—rose slightly from 81.9 to 83.8 (1985 = 100). 

“Consumer expectations for the next six months increased slightly in January, due to receding pessimism around future business conditions, labor market and income prospects,” Peterson continued. “Expectations that interest rates will rise in the year ahead plummeted to just 41.5%. Consumers expecting stock prices to be higher in the year ahead retreated slightly after surging in December, but remained near three-year highs.”

As for consumers’ short-term business conditions outlook, 16.6% expect business conditions to improve (down from 18.7%), and 16% expect conditions to worsen (down from 17.8%). For the labor market outlook, 16% of consumers expect more jobs to be available (down from 17.6%), and 15.3% anticipate fewer jobs (down from 18.4%). For short-term income prospects, 16.4% of consumers expect their incomes to increase (down from 18.3%), and 11.5% expect a decrease (down from 13.6%). 

“Average 12-month inflation expectations fell to 5.2%, the lowest since March 2020 (4.5%),” concluded Peterson. “Consumers’ views of their expected family financial situation, six months hence (not included in calculating the Expectations Index) were slightly more tempered in January but remained on net optimistic. On a month-to-month and six-month basis, buying plans for autos, homes and big-ticket appliances declined slightly for all three categories.”

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