Consumer Confidence Up, but Future Cloudy

The Conference Board's Consumer Confidence Index climbed to 103.4 in December, but the Expectations Index slipped to 98.4.

NEW YORK — Although consumer confidence unexpectedly inched up in January, consumers’ expectations for the next six months withered.

But that may not affect how they spend, economists said.

The Conference Board’s Consumer Confidence Index for the month climbed to 103.4 from 102.7 in December. The consensus had been for the index to fall to 101.

Consumers’ overall assessment of current conditions also showed some improvement as the Present Situation Index rose to 110.9 in January from 105.7 in the prior month. The Expectations Index, however, slipped to 98.4 from 100.7 in December.

UBS economist Maury N. Harris, in his research note Tuesday, said despite the modest drop in the expectations component, January’s 98.4 reading suggests continued strong consumer spending. “It is at a level that looks consistent with close to a 4 percent trend in real consumer spending,” he wrote.

According to a report from Merrill Lynch economists Tom Porcelli and David Rosenberg, the expectations component results suggest “some concern about future prospects.” However, the present situations component advanced “smartly” and the Consumer Confidence Index in general “is a fairly good predictor of consumer spending in the near-term and would suggest spending is on a solid footing.”

Economists from both firms also noted the improved view of consumers regarding the labor market.

Consumers who said jobs are “plentiful” rose to 20.7 percent in January from 19.4 percent last month, while those claiming jobs were “hard to get” fell to 24.7 percent from 26.4 percent.

This led the Merrill Lynch economists to predict an increase of 175,000 nonfarm jobs in January versus December’s increase of 157,000. The next employment report is scheduled for Feb. 4.

Harris is looking for a payroll gain of 200,000 in January, with unemployment holding steady at 5.4 percent. “We expect the labor market to remain healthy in 2005,” he wrote in his report.

Lynn Franco, director of the Conference Board’s Consumer Research Center, said in a statement that despite the “slight retreat in expectations, consumers’ short-term outlook remains favorable and suggests the economy will continue to expand throughout the first half of this year.

This story first appeared in the January 26, 2005 issue of WWD.  Subscribe Today.

“And, recent advances in the Present Situation Index, now at its highest level since May 2002, suggest consumers will not dramatically alter their spending in the months ahead,” Franco added.