Americans’ Sentiment Eased in January on Stock Market Weakness

Consumer confidence cooled in January, shaken by a stock-market downturn that elevated Americans’ concerns about the economy and labor market.

The University of Michigan final index of sentiment dropped to 92 from 92.6 in December, backtracking from a preliminary January reading of 93.3. The median projection in a Bloomberg survey called for 93.

“Most of the downward revisions that occurred in late January were due to stock market declines, reflected in the erosion of household wealth as well as weakened prospects for the national economy,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.

A weakening of sentiment that’s followed by more subdued spending would make it harder for the economy to re-accelerate after a fourth-quarter slowdown. The survey showed concerns about wage and employment gains that risk further weighing on moods and purchases.

A separate report from the Commerce Department showed the economy expanded at a 0.7 percent annualized rate in the final three months of 2015 after a 2 percent third-quarter gain. Consumers tempered their spending and businesses cut back on capital investment.

Consumer confidence estimates in the Bloomberg survey ranged from 89 to 94.

The sentiment report’s current conditions index, which takes stock of Americans’ view of their personal finances, dropped to 106.4, from the prior month’s 108.1. The preliminary reading was 105.1.

Financial Markets

Falling stock prices and weakness in overseas economies were “spontaneously” mentioned by one of every three households with incomes in the top third of the earnings ladder, the most since 1997-1998 financial crisis in Asia, the report said.

The measure of expectations six months from now held at

82.7. The initial January reading was 85.7.

The report showed American households see slower economic growth being accompanied by slight increases, rather than further declines, in the jobless rate by the end of the year. Consumer also expected the smallest gains in incomes since the summer of 2014.

At the same time, “very low inflation rates have maintained inflation-adjusted income expectations at the highest levels since 2007,” Curtin said.

Inflation Projections

Consumers projected the inflation rate in the next year will be 2.5 percent, down from 2.6 percent in the December survey. Over the next five to 10 years, they expect a 2.7 percent rate of inflation, compared with 2.6 percent in the previous month.

Other recent reports on household confidence have been fairly positive. The Bloomberg Consumer Comfort Index climbed to

44.6 in the period ended Jan. 24 from 44 the prior week.

The labor market is a bright spot for consumers’ moods and spending prospects. A jump in December payrolls capped the best back-to-back years for employment since 1998-99. The jobless rate is 5 percent, the lowest since 2008.

At the same time, wage growth is sluggish. Average hourly earnings have been stagnating in the 2 percent range since the expansion began in mid-2009.

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