Consumer Confidence Index Drops Due To Shutdown

The government shutdown sent the consumer sentiment index in a nosedive at mid-month and also sent the Conference Board's consumer confidence index into a spiral of its own for January. The index fell to 120.0 which is near the low end of Econoday's consensus range and down 6.6 points from a downward revised December.

But the weakness is narrowly centered in the expectations component which plunged 10.4 points to 87.3. This is the lowest reading in more than three years and follows an even more severe collapse in December when the government shutdown first took hold. Pessimists on the employment outlook increased while optimists on the income outlook declined.

The good news in the report is steadiness in the present situation component. Sub-components here are largely tied to the assessment of the labor market and are once again favorable and should confirm expectations for solid strength in Friday's employment report. Those saying jobs are currently hard-to-get did edge 7 tenths higher but are still very low at 12.9 percent. Those saying jobs are currently plentiful rose 1.1 percentage points to a very strong 46.6 percent.

Six-month buying plans show a small uptick for autos, a large downtick for major appliances but a very sharp 1.9 percentage point gain for homes to 7.8 percent. This is a very welcome indication for the housing market which has been struggling. A closely watched detail in the report is an incremental downtick for year-ahead inflation expectations which, at 4.4 percent, are very low for this report.

The reopening of the government, even though temporary so far, is likely to reverse at least some of the downward shift in confidence readings. Yet whether confidence can regain the strength of their 20-year highs of just last year looks to be a key question for the strength of consumer spending in 2019.