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Low Expectations Weigh on Confidence

Last month's improvement in consumer confidence was short-lived as consumers, assessing the short-term jobs outlook, turned pessimistic in January.

Last month’s improvement in consumer confidence was short-lived as consumers, assessing the short-term jobs outlook, turned pessimistic in January.

The Conference Board Consumer Confidence Index fell to 87.9 from 90.6 in December. Its two components showed mixed results as the Expectations Index dropped to 69.6 from 75.8 last month, while the Present Situation Index rose to 115.3 from 112.9.

“Looking ahead, consumers are quite downbeat about the short-term future, and a greater proportion expect business conditions and employment to deteriorate further in the months ahead,” said Lynn Franco, director of The Conference Board Consumer Research Center. “In addition, the percentage of consumers anticipating improvements in their earnings has declined and could potentially impact spending decisions.”

The January consumer confidence reading came in ahead of the consensus among economists, who had it pegged at 87.5.

“Although consumer confidence continued to decline in January, consumers’ assessment of the jobs market improved modestly, which supports our forecast of a small decline in the unemployment rate to 4.9 percent in January from 5 percent in December,” wrote Bear, Stearns & Co.’s chief U.S. economist, John Ryding, in a research note.

Franco also noted, “Consumers’ appraisal of current business conditions is becoming more negative and their assessment of the job market, while slightly less negative than in December, is more negative than a year ago.”

In January’s survey, consumers’ assessment of present-day conditions is less than favorable, with those claiming business conditions are “bad” rising to 20 percent from 18.8 percent. In comparison, respondents who said business conditions are “good” fell to 20.7 percent from 21.2 percent.

On the expectations front, those who believe business conditions will worsen over the next six months rose to 16 percent from 14.1 percent, while respondents stating that business conditions will improve decreased to 11.6 percent from 13.8 percent.

The labor market’s outlook also was less favorable as the number of consumers expecting fewer jobs in the months ahead rose to 21.5 percent from 19.9 percent. In addition, those who anticipate more jobs dipped slightly to 10.5 percent from 10.9 percent. Moreover, the number of respondents who expect their incomes to increase decreased to 17.6 percent from 20.2 percent.