Consumer Confidence Dips to 4-Month Low, but Financial Hopes Soar

Shoppers check out the wares in a retail store in Niles, Ill., on Feb. 19, 2022. Nam Y. Huh/AP Photo

A new report shows that confidence among U.S. consumers dropped to a four-month low in January as assessments of current business and labor market conditions worsened. Despite this decline, household optimism about significant financial improvements over the next six months reached a record high, signaling a divergence between present concerns and future hopes for improvement under the Trump administration.

The Conference Board reported on Jan. 28 that its consumer confidence index fell by 5.4 points to 104.1 in January, marking the second consecutive month of decline and the lowest reading in four months. While all five components of the confidence index deteriorated, the present situation gauge—which is based on consumers’ evaluation of current business and labor market conditions—experienced the sharpest drop, falling by 9.7 points.

“Views of current labor market conditions fell for the first time since September 2024, while assessments of business conditions weakened for the second month in a row,” Dana M. Peterson, chief economist at The Conference Board, said in a statement.

Expectations for future business and labor conditions also softened. The share of consumers anticipating more jobs in six months slipped from 19.8 percent in December 2024 to 19.4 percent in January, while those expecting fewer jobs held steady at 20.3 percent. Similarly, the proportion of consumers expecting business conditions to worsen increased to 18.7 percent, up from 17.3 percent the prior month. Income optimism declined slightly as well, with only 18.3 percent of respondents expecting an increase in their income, compared with 19 percent in December 2024.

Still, there were positive notes in the report. Consumers’ expectations for family finances six months ahead reached a high, and the proportion of those predicting a recession over the next 12 months remained near record lows.

“Consumers also remained bullish about the stock market, even if a bit less so than at the end of 2024,” Peterson said, highlighting that more than half of respondents expect stock prices to rise in the coming year.

Inflation expectations rose in January, with the average 12-month projection increasing from 5.1 percent to 5.3 percent. Concerns about high prices remained prominent in write-in responses, according to Peterson. Additionally, 51.4 percent of consumers now expect higher interest rates over the next year, while the share expecting lower rates fell from 28.5 percent in December 2024 to 23.9 percent in January. These shifts align with the Federal Reserve’s signaling of slower rate cuts in 2025, alongside rising mortgage rates and persistent inflation.

Despite weakening confidence, consumer spending has remained strong, propping up the economy. Government data released in December 2024 showed a 3.1 percent annualized gross domestic product (GDP) growth rate in the third quarter, fueled by robust consumer spending and a surge in exports.

Projections for the fourth quarter vary, however. The Federal Reserve Bank of Atlanta’s GDPNow model projects growth of 3.2 percent, while the New York Federal Reserve’s Staff Nowcast predicts a more moderate 2.6 percent expansion. Meanwhile, the St. Louis Federal Reserve’s Real GDP Nowcast estimates a 2.38 percent increase for the October-to-December period.

There have also been some signs that consumers may be getting stretched. A recent study from the Philadelphia Federal Reserve found that the number of credit card holders making only the minimum payments on their bills has risen to a 12-year high. Similarly, data from the St. Louis Federal Reserve shows that the delinquency rate on consumer loans rose to 2.73 percent in the third quarter, the highest level since 2012.