Consumer Confidence Declines As 'Buying In Advance' Trends Grow

U.S. consumer confidence took an unexpected step back in January as renewed inflation worries and growing fears of rising unemployment clouded the economic outlook for the year ahead.

The sobering data comes from the final report released by the University of Michigan on Friday, which showed consumer sentiment falling from 74.0 in December 2024 to 71.1 in January 2024, marking a 3.9% monthly decline and a 10% drop year-over-year.

This is the first decline in U.S. consumer confidence in six months and a downward revision from preliminary estimates that had projected sentiment at 73.2.

While the subindex for consumer expectations saw only a marginal downward revision from 70.2 to 69.3, still remaining below December’s 73.3, the more pronounced deterioration occurred in the current conditions indicator.

The gauge measuring current economic conditions fell sharply from a preliminary estimate of 77.9 to 74.0.

“While assessments of personal finances inched up for the fifth consecutive month, all other index components pulled back,” the University of Michigan stated in its report.

Despite consumers reporting higher incomes this month, concerns over unemployment surged, with 47% of respondents expecting joblessness to rise in the coming year, the highest level of pessimism since the pandemic-induced recession.

Inflation Expectations Remain A Major Concern

Inflation expectations remained unchanged from initial estimates.

Short-term inflation expectations jumped from 2.8% in December to 3.3% in January, reaching their highest level since May 2024 and exceeding the 2.3%-3.0% range seen in the two years before the pandemic. Similarly, long-term inflation expectations increased from 3.0% to 3.2%, matching November's reading.

These inflation expectations are a growing cause for concern.

“Worries about the future trajectory of inflation were evident throughout consumer interviews and were often linked to anticipated policy changes, such as tariffs,” said Joanne Hsu, director of the Surveys of Consumers.

“Consumers continued to express motivations for buying in advance to avoid future price increases, and robust auto and retail sales data suggest they are indeed acting on these concerns,” she added.

Market Reactions: Wall Street Rally Stalls

Friday's trading session on Wall Street started on a cautious note, and the consumer sentiment report did little to improve investor confidence.

By 11:20 a.m. ET, the S&P 500 Index – as tracked by the SPDR S&P 500 ETF Trust SPY – was down 0.1%, following five consecutive days of gains. The Dow Jones Industrial Average and the Nasdaq 100 also traded slightly in the red.

Meanwhile, bond yields edged lower, and gold – as tracked by the SPDR Gold Trust GLD – climbed to $2,777 per ounce, hovering near record highs.

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