US Consumer Sentiment Hits 12-Year Low as Inflation and Employment Instability Spread

CB Consumer Confidence Index at 84.5
Down 9.7 points from previous month
Lowest level since 2014

Donald Trump, President of the United States. Photo by Reuters Yonhap News

As inflation and employment instability spread across the United States, American consumer sentiment has weakened to its lowest level in 12 years this month. In particular, concerns have been raised because this decline in confidence has been accompanied by a worsening perception of the labor market.

On January 27 (local time), the Conference Board (CB), a U.S. economic research organization, announced that the U.S. Consumer Confidence Index for January stood at 84.5 (with 1985=100 as the baseline). This is a decrease of 9.7 points from the previous month (94.2, revised), marking the lowest level since May 2014 (82.2) in nearly 12 years, and even lower than during the pandemic. It also fell well short of the Dow Jones expert forecast of 90.0.

The Present Situation Index, which reflects current business and labor market conditions, plunged by 9.9 points from the previous month to 113.7. The Expectations Index, which reflects consumers’ short-term outlook, also dropped sharply by 9.5 points from the previous month to 65.1. An Expectations Index below 80 is generally considered to signal an impending recession.

The proportion of respondents who answered that “jobs are plentiful” fell to 23.9%, down from 27.5% the previous month. The response rate for “jobs are hard to get” rose to 20.8%, the highest since February 2021. The labor market gap index, which reflects the difference between these two indicators, plummeted to 3.1, a sharp deterioration from 8.4 the previous month.

Dana Peterson, Chief Economist at the Conference Board, explained, “Consumer confidence in January collapsed as both expectations and concerns about current and future conditions worsened.” She added, “There were still many mentions of prices, inflation, oil and gasoline prices, and food prices,” and “mentions of tariffs and trade, politics, the labor market, health insurance, and war have increased.”

Although the Consumer Confidence Index has generally been interpreted as having little correlation with actual consumption, Reuters noted that the confirmation of pessimistic perceptions about the labor market in these indicators is likely to be a burden for the Donald Trump administration.

Oliver Allen, Chief U.S. Economist at Pantheon Macroeconomics, said, “The Expectations Index has tended to exaggerate the recent slowdown in consumption,” but added, “Given stagnant real income and an already very low personal savings rate, it is difficult to dismiss the recent decline as a completely misleading signal.”

However, economists believe that this decline in confidence is unlikely to influence the U.S. Federal Reserve’s monetary policy decisions, according to Reuters. The Federal Reserve is holding its first Federal Open Market Committee (FOMC) meeting of the year on January 27-28 to decide the benchmark interest rate. A “hold” is widely expected at this meeting. The current rate stands at 3.5-3.75%.