Both of the country’s primary measurements of consumer sentiment in January showed that although Americans were more positive about their personal financial situations, they were pessimistic about the future of the job market and inflation, dragging the overall indexes down.
The Conference Board said its Consumer Confidence Index declined 5 points, to 104.1, from an upwardly revised 109.5 in December. “Consumer confidence has been moving sideways in a relatively stable, narrow range since 2022. January was no exception,” Dana M. Peterson, chief economist at The Conference Board, stated in a press release.
“All five components of the index deteriorated, but consumers’ assessments of the present situation experienced the largest decline,” Peterson added. “Notably, views of current labor-market conditions fell for the first time since September, while assessments of business conditions weakened for the second month in a row. Meanwhile, consumers were also less optimistic about future business conditions and, to a lesser extent, income. The return of pessimism about future employment prospects seen in December was confirmed in January.”
The Conference Board said consumers under the age of 55 led the drop in confidence; people older than that saw a “small uptick” in confidence. When income groups are compared, the think tank said, the sharpest decline in confidence was among households that earn more than $125,000 a year. The gap in confidence between the highest-income groups and households that earn $75,000 to $100,000 narrowed.
The Conference Board said its survey also found that 51.4% of consumers now expect higher interest rates during the next 12 months. The average inflation expectation increased from 5.1% to 5.3%. “Nonetheless, there were positive notes in other aspects of the survey,” Peterson said. “Consumers’ views of their family’s current financial situation were more positive, and six-month expectations for family finances reached a new series high. The proportion of consumers anticipating a recession over the next 12 months was stable near the series low.”
Peterson said those measures were not included in calculating the Consumer Confidence Index. “Consumers also remained bullish about the stock market, even if a bit less so than at the end of 2024,” she adds. “Over half of consumers (52.9%) expected stock prices to increase over the year ahead, compared to just 23.7% who expected stock prices to decline.”
The University of Michigan said its Consumer Sentiment Index fell to 71.1 in January from 74 the previous month. “Consumer sentiment fell for the first time in six months, edging down 4% from December,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “While assessments of personal finances inched up for the fifth consecutive month, all other index components pulled back.
“Buying conditions for durables softened but remained about 30% better than six months ago amid persistent views that purchasing now would avoid future price increases,” Hsu added. “Despite reporting stronger incomes this month, concerns about unemployment rose; about 47% of consumers expect unemployment to rise in the year ahead, the highest since the pandemic recession.”
The university said its survey work for January’s report concluded Jan. 20 — Inauguration Day — and Hsu said the public’s views will continue to evolve as President Trump clarifies and implements his policies. “Survey responses make clear that the recent partisan divergence in confidence in the economy is rooted in how consumers view Trump’s proposed policies,” Hsu said. “Some consumers believe that these policies, like tariffs, will slow inflation to a crawl. Others believe Trump’s policies will lead inflation to roar back and that buying now would help people avoid higher prices in the future. Strong spending data for vehicles and retail sales are signs that consumers are indeed acting on those beliefs with their wallets.”
Asked directly about tariffs, 62% of those surveyed favored lower tariffs for the economy, and only 19% said they believed higher tariffs were a better course.
The Commerce Department said consumer spending climbed 0.7% in December after an upwardly revised 0.6% gain the previous month. Even adjusted for inflation, spending was up 0.4%. Personal income rose 0.4%, an improvement on a gain of 0.3% in November. “We expect consumer spending will continue to be bolstered by strong balance sheets overall, including record amounts of housing wealth,” Nancy Vanden Houten, lead U.S. economist at Oxford Economics, told Reuters.
Inflation rose moderately in December, although the gain was the most in eight months. The Commerce Department said the Personal Consumption Expenditures Price Index rose 0.3% after an unrevised 0.1% the previous month. During the 12-month period through December, the PCE index rose 2.6%. Excluding the volatile food and energy components, the core PCE index was up 0.2% after an unrevised 0.1% in November.
The Federal Reserve, which held its benchmark interest rate steady in January, is seeking to get the rate of inflation all the way down to 2%. “[The December data] will be welcome news at the Fed, though as conveyed in recent Fed speak the [Federal Open Market Committee, the central bank’s policymaking panel] will be patient in considering further interest-rate cuts, and we still see them on hold until midyear,” Abiel Reinhart, an economist at JPMorgan, predicted in comments to Reuters.
The Conference Board said its Leading Economic Index edged down 0.1%, to 101.6, in December after an upwardly revised and unexpected increase of 0.4% in November. “The index fell slightly in December, failing to sustain November’s increase,” Justyna Zabinska-La Monica, senior manager, business cycle indicators, at The Conference Board, stated in a press release.
“Low consumer confidence about future business conditions, still relatively weak manufacturing orders, an increase in initial claims for unemployment and a decline in building permits contributed to the decline,” Zabinska-La Monica added. “Still, half of the 10 components of the index contributed positively in December. Moreover, the LEI’s six-month and 12-month growth rates were less negative, signaling fewer headwinds to U.S. economic activity ahead. Nonetheless, we expect growth momentum to remain strong to start the year and U.S. real GDP to expand by 2.3% in 2025.”
The Commerce Department said in late January that the economy grew at exactly that pace in the fourth quarter of last year. The economy grew 2.8% for the full year.
“This report will assure the Fed that [its interest-rate] policy was not overly restrictive [in the fourth] quarter,” Will Compernolle, macro strategist at FHN Financial, told Reuters. “Whatever the economic fundamentals were at the end of last year, however, new federal policies could set the economy on a new path soon.”
The mood at the nation’s small businesses continued to improve in December. The National Federation of Independent Business said its Small Business Optimism Index rose 3.4 points, to 105.1, its highest reading since October 2018.
“Optimism on Main Street continues to grow with the improved economic outlook following the election,” NFIB chief economist Bill Dunkelberg stated in a press release. “Small-business owners feel more certain and hopeful about the economic agenda of the new administration. Expectations for economic growth, lower inflation and positive business conditions have increased in anticipation of pro-business policies and legislation in the new year.”
NFIB said the net percentage of business owners who expect the economy to improve rose 16 points, to a net 52%, seasonally adjusted — the highest percentage since the fourth quarter of 1983. Twenty percent of NFIB member owners say inflation was their single, most important business problem in December. Labor quality was one point behind, at 19%. A seasonally adjusted 35% of owners reported job openings that they could not fill. Also seasonally adjusted, a net 29% of owners reported raising pay in December.
Confidence among home builders edged higher as the new year began. The National Association of Home Builders said its NAHB/Wells Fargo Housing Market Index rose to 47 in January, up 1 point from the previous month.
“Builders are facing continued challenges for housing demand in the near term, with mortgage rates up from near 6.1% in late September to above 6.9% today,” NAHB chairman Carl Harris, a custom-home builder from Wichita, Kan., stated in a press release. “Land is expensive, and financing for private builders remains costly. However, there is hope that policymakers are taking the impact of regulatory hurdles seriously and will make improvements in 2025.”
“NAHB is forecasting a slight gain for single-family housing starts in 2025 as the market faces offsetting upside and downside risks from an improving regulatory outlook and ongoing elevated interest rates,” NAHB chief economist Robert Dietz added in a statement. “And while ongoing — but slower easing from the Federal Reserve should help financing for private builders currently squeezed out of some local markets — builders report cancellations are climbing as a direct result of mortgage rates rising back up near 7%.”
The three HMI component indexes were mixed in January. The index that gauges current sales conditions rose 3 points, to 51; the index that charts the traffic of prospective buyers rose 2 points, to 33; but the component that measures sales expectations during the next six months fell 6 points, to 60, partly because of elevated interest rates. Any number above 50 indicates that more builders view conditions as good rather than poor.
The Commerce Department said sales of new homes rose 3.6% in December, to a seasonally adjusted annual rate of 698,000, from an upwardly revised November figure. “New-home sales ended 2024 higher on ongoing limited resale inventory conditions,” NAHB’s Harris stated in a press release. “Builders are cautiously optimistic about the building market for 2025, given a post-election policy reset that seeks to eliminate unnecessary regulations.”
“New-home sales ended the year 2.5% higher over the 2023 total,” Dietz, also of the NAHB, added in a statement. “NAHB is forecasting a slight gain for sales in 2025, given ongoing solid macroeconomic conditions, particularly for the labor market.” The median new-home sale price in December was $427,000, up 2.1% from the same month a year earlier.
Existing-home sales were also higher in December. The National Association of Realtors said sales rose 2.2% in December, to a seasonally adjusted annual rate of 4.24 million, the strongest pace since February 2024. “Home sales in the final months of the year showed solid recovery despite elevated mortgage rates,” NAR chief economist Lawrence Yun stated in a press release. “Home sales during the winter are typically softer than the spring and summer, but momentum is rising, with sales climbing year-over-year for three straight months.”
NAR said the total housing inventory registered at the end of December was 1.15 million, down 13.5% from the previous month but up 16.2% from the same month a year earlier. Unsold inventory in December was at a 3.3-month supply at the current sales pace, down from a 3.8-month supply in November.
The median existing-home sales price was $404,400 in December, up 6% from the same month a year earlier. “The median home price was elevated partly due to the upper-end market’s relative better performance,” Yun said. “Sales rose by 35% from a year ago for homes priced above $1 million, while sales fell for homes priced under $250,000.”
