US confidence index drops to 89.1 in Dec as current conditions weaken

The decline was driven largely by a sharp deterioration in perceptions of current conditions. The present situation index, which measures consumers’ assessment of prevailing business and labour market conditions, plunged by 9.5 points to 116.8. In contrast, the expectations index, which captures consumers’ short-term outlook for income, business, and employment, held steady at 70.7. Notably, the expectations index has remained below 80 for 11 consecutive months, a level historically associated with recession risks, TCB said in a press release.

“Despite an upward revision in November related to the end of the shutdown, consumer confidence fell again in December and remained well below this year’s January peak. Four of five components of the overall index fell, while one was at a level signalling notable weakness,” said Dana M Peterson, chief economist at The Conference Board.

Perceptions of current business conditions turned negative for the first time since September 2024, a period marked by labour market disruptions and severe hurricanes. Views on employment conditions also weakened, with the labour market differential—the share of consumers saying jobs are ‘plentiful’ minus those saying jobs are ‘hard to get’—continuing to signal strain.

Within the expectations index, two of the three components declined in December. While the sharp drop in expectations for business conditions six months ahead seen in November largely reversed, sentiment remained negative overall. Expectations for labour market conditions grew gloomier, and optimism around future household income softened further.

Across demographic groups, confidence declined broadly. On a six-month moving average basis, confidence dipped among all age groups in December, although consumers under 35 continued to be more confident than those aged 35 and above. Generational trends were largely similar, with confidence trending downwards across cohorts. The silent generation was the only group to show some improvement, while millennials and Gen Z remained the most optimistic overall.

Income-based analysis showed confidence falling across most brackets, except among households earning less than $15,000 and those earning more than $125,000 annually. Even so, the lowest-income group continued to be the least optimistic. Confidence also declined across all political affiliations, including Democrats, Republicans, and Independents.

Peterson noted that consumers’ written responses continued to highlight inflation and prices, tariffs and trade, and politics as key concerns. December also saw increased references to immigration, war, and personal financial issues such as interest rates, taxes, income, banking, and insurance. While responses remained largely pessimistic, they were marginally less so than in November, partly due to fewer negative mentions of inflation and politics, alongside a rebound in positive sentiment around interest rates. This shift followed the Federal Reserve’s third monetary policy rate cut of 2025, announced on December 10, which fell within the latter half of the survey period.

Despite the rate cut, the share of consumers expecting interest rates to rise increased on balance, while expectations for lower rates declined. Both median and average twelve-month inflation expectations eased in December after rising in November. Meanwhile, expectations for stock prices twelve months ahead turned the most positive since January 2025.

On balance, views of families’ current financial situations fell into negative territory for the first time in nearly four years. However, expectations for future family finances were the most positive since January. Perceptions of recession risk also shifted slightly: the share of consumers saying a US recession is ‘not likely’ over the next 12 months edged up to around one-fifth, while those saying it is ‘very likely’ continued to decline. Still, the largest group remained those who believe a recession is ‘somewhat likely,’ and a small but rising share said the US economy is already in recession. These measures are not included in the headline confidence index.

Detailed sentiment indicators underscored the broader weakness. Only 18.7 per cent of consumers described current business conditions as ‘good,’ down from 21 per cent in November, while 19.1 per cent said conditions were ‘bad,’ up from 15.8 per cent. Labour market perceptions also deteriorated, with 26.7 per cent saying jobs were ‘plentiful,’ down from 28.2 per cent, and 20.8 per cent saying jobs were ‘hard to get,’ up from 20.1 per cent.

Looking six months ahead, consumers were marginally less pessimistic about business conditions, with 18 per cent expecting improvement and 21.8 per cent anticipating worsening conditions. However, concerns about the labour market intensified, as 27.4 per cent expected fewer jobs to be available, compared with 26.8 per cent in November. Income expectations were mixed, with more consumers expecting income gains, but also a rising share anticipating declines, added the release.

ALCHEMPro News Desk (SG)