#USConsumerConfidence

Consumer confidence in the US gauges the perception of American citizens in terms of economic conditions and their perception of personal finances. In January 2025, the University of Michigan Consumer Sentiment Index fell due to a drop to 71.1 from December at 74.0. It is the first decline in six months and is caused by fears over the labor market and potential price rises resulting from threatened tariffs.

The decline in sentiment was widespread, with 47% of consumers expecting unemployment rates to rise -- the highest such percentage since the pandemic-induced recession. One-year inflation expectations also ticked higher to 3.3%, topping December's reading of 2.8%, but still above its pre-pandemic range of 2.3% to 3.0%. Long-term inflation expectations also ticked higher to 3.2%.

Despite these reservations, consumer spending has remained hardy. In November 2024, it increased by 0.7%, but helped contribute to a 3.1% annual economic growth rate in the last quarter, mainly driven by consumer demand.

Forecasters foresee brighter skies ahead for 2025. Low unemployment, steady growth in jobs, and increasing wages have all served as previous boosters to consumer confidence. Persistent inflation and potentially implemented tariffs, however, may temper that view.

In summary, consumer confidence itself has ebbed and flowed with challenges in recent months. Still, the underlying strength of consumer spending remains a key driver to underpin U.S. economic growth.