The recent data released by the Conference Board shows a decline in the consumer confidence index for January, with a reading of 104.1 compared to the Bloomberg consensus of 105.7, down from 109.5 in December. This 5.4 point decrease is approximately 1 standard deviation for the period from July 2021 to December 2024. What’s particularly noteworthy is that the expectations, rather than the current situation, have also taken a hit.
In addition to the drop in confidence recorded by the Conference Board, a decrease in expectations has also been observed in both the University of Michigan Survey of Consumers and the Gallup poll.
Overall sentiment and confidence indices have declined across the board for the University of Michigan, Conference Board, and Gallup series. This is indicative of a broader trend of diminishing optimism among consumers.
Including Wells Fargo’s “Animal Spirits Index”, which aggregates various economic indicators, such as the S&P 500, the 10-year Treasury yield, the Economic Policy Uncertainty Index (EPU), the VIX volatility index, and the Conference Board confidence index, paints a comprehensive picture of the economic landscape.
Wells Fargo warns of downside risks to the Consumer Confidence Index and the Animal Spirits Index in 2025. Consumer responses in December highlighted concerns about tariffs, with a significant portion expecting them to raise the cost of living in the short term. The potential imposition of higher tariffs could lead to a modest stagflationary impact on the economy, characterized by increased prices and slower economic growth. This would negatively impact real income growth, leading to decreased consumer spending and weakened confidence.
The looming threat of tariffs is already casting a shadow over consumer sentiment, highlighting the interconnected nature of economic indicators and consumer behavior. It is crucial for policymakers and businesses to monitor these developments closely and adapt strategies to navigate the evolving economic landscape efficiently.
