A new report reveals that due to deteriorating assessments of the current business and labor market conditions, consumer confidence in the United States dropped to its lowest point in four months in January. Despite this decline, optimism among households for significant financial improvement in the next six months has reached a historic high. This indicates a divergence between current concerns and hopes for future improvement under the leadership of the Trump administration.
According to the Conference Board, on January 28, the Consumer Confidence Index in the United States dropped by 5.4 points to 104.1 in January, marking the second consecutive month of decline and the lowest level in four months. While all five components of the confidence index saw declines, the steepest drop was in the Present Situation index, which measures consumers’ evaluation of the current business and labor market conditions, declining by 9.7 percentage points.
“The view of the current labor market conditions decreased for the first time since September 2024, while assessments of business conditions weakened for the second consecutive month,” said Dana M. Peterson, Chief Economist at the Conference Board.
Expectations for future business and labor conditions also decreased. The proportion of consumers expecting more job opportunities in the next six months decreased from 19.8% in December 2024 to 19.4% in January this year, while the proportion of consumers expecting a decrease in job opportunities remained stable at 20.3%. Similarly, the proportion of consumers expecting a deterioration in business conditions increased from 17.3% last month to 18.7%. Optimism about income also slightly decreased, with only 18.3% of respondents expecting an increase in their incomes compared to 19% in December 2024.
However, the report also contains some positive news. Consumer expectations for their household financial conditions in the next six months reached a high point, and the proportion of respondents predicting an economic recession in the next 12 months remains close to a historic low.
“Consumers are still optimistic about the stock market, even though it has slightly declined since the end of 2024,” Peterson said, emphasizing that over half of respondents expect stock prices to rise this year.
Expectations for inflation in January saw a slight increase, with the average 12-month expectation rising from 5.1% to 5.3%. Concerns about high prices remain prominent in survey responses. Additionally, 51.4% of consumers now expect interest rates to rise this year, while the proportion of respondents expecting interest rates to fall decreased from 28.5% in December 2024 to 23.9% in January this year. These shifts align with signals from the Federal Reserve to slow interest rate cuts in 2025, as well as with rising mortgage rates and ongoing inflation.
Despite weakening confidence, consumer spending remains robust, supporting economic growth. Government data released in December 2024 showed that in the third quarter of last year, GDP grew at an annualized rate of 3.1%, driven by strong consumer spending and a surge in exports.
However, forecasts for the fourth quarter of 2024 vary. The GDPNow model from the Federal Reserve Bank of Atlanta predicts growth of 3.2%, while the Staff Nowcast from the Federal Reserve Bank of New York forecasts growth of 2.6%. Meanwhile, the Real GDP Nowcast from the Federal Reserve Bank of St. Louis estimates growth of 2.38% for the period from October to December of last year.
There are indications that consumer purchasing power may decline. A recent study by the Federal Reserve Bank of Philadelphia found that the number of credit card holders paying only the minimum repayment has reached its highest level in 12 years. Similarly, data from the Federal Reserve Bank of St. Louis shows that the delinquency rate for consumer loans in the third quarter of last year rose to 2.73%, the highest level since 2012.