The economic confidence of U.S. households declined in January following three months of improving consumer morale at the end of last year, survey results released Tuesday showed.
The Conference Board said its index of consumer confidence declined to 113.8 from 115.2 in December. That was slightly better than the 111.9 reading forecast by the Econoday poll.
Consumer confidence rose rapidly through the Trump years but was hammered by the onset of the pandemic and lockdowns. It rebounded last year with the deployment of vaccines but fell back down to depressed levels when the Delta variant wave of infections made it clear that we had not succeeded in moving beyond the pandemic.
The January decline in confidence is the latest piece of evidence that the Omicron variant has battered the economy. Last week, the New York Fed’s monthly survey of manufacturers indicated that the sector had contracted. A similar survey from the Philadelphia Fed, however, showed that growth continued. On Tuesday, the Richmond Fed’s survey showed that growth had softened by more than expected but did not peter out altogether. The “flash” survey of services and manufacturing purchasing managers from IHS Markit released Monday indicated that the economy had come to a “near standstill” in January. Jobless claims have risen and hotel occupancy is falling. Homebuilder confidence fell despite a searingly hot market for homes and historically low levels of housing inventory available for sale.
Even prior to the start of this year, economic growth appeared to be slumping. Single-family housing starts unexpectedly crashed in December. Factory production suffered a sharp and surprising downturn. And retail sales fell significantly, defying predictions that consumers flush with cash would spend heavily in the final weeks of the holiday shopping season. Job growth in December badly missed expectations for over 400,000 jobs, coming in at just 199,000. In November, the U.S. trade deficit rose to its second highest level ever, indicating that imports were draining income from the U.S. economy at a near-record rate.
The omicron surge’s infection appears to be far less virulent than earlier waves, inflicting serious disease on a far lower share of those who contract the coronavirus. But it appears to spread more easily. Due to quarantine rules and high levels of infection, millions are Americans are likely having to stay home from work for several days at a time. That could limit economic output and make the inflation problem gripping the economy even worse. Fortunately, this is likely a temporary hit. New cases are already falling nationally and falling rapidly in areas like New York City where the omicron variant hit earliest.
The “present situation” measure, which looks at how consumers feel about the economy right now, rose by 3.4 points to 148.2. This may be an indication that consumers are less worried about this wave of the pandemic than they were about earlier waves. Less burdensome restrictions in many areas of the country, such as Florida, may also be helping brighten the view of business conditions. The view of the strength of the labor market deteriorated slightly but a historically high number of Americans still stay jobs are easy to get.
The expectations measure, which looks at what consumers expect six months from now, surprisingly weakened, falling to 90.8 from 95.4. Household forecasts about the labor market, business conditions, and income all dimmed.
“The Present Situation Index improved, suggesting the economy entered the new year on solid footing. However, expectations about short-term growth prospects weakened, pointing to a likely moderation in growth during the first quarter of 2022. Nevertheless, the proportion of consumers planning to purchase homes, automobiles, and major appliances over the next six months all increased,” said Lynn Franco, senior director of economic indicators the Conference Board.
Worries about inflation declined for the second straight month, but remain elevated after hitting a 13-year high in November 2021, according to Franco.
“Looking ahead, both confidence and consumer spending may continue to be challenged by rising prices and the ongoing pandemic,” Franco said.