Consumer sentiment in the United States declined in January, reflecting growing uncertainty about the nation’s economic direction despite ongoing strength in the job market and a steady end to the holiday shopping season. According to data released by the Conference Board on January 30, the Consumer Confidence Index dropped to 104.1 in January, down from a revised 109.5 in December. This marks the second straight monthly decline and underscores increasing consumer unease heading into 2025.
The decrease in confidence was more noticeable in consumers’ perceptions of current economic conditions. The Present Situation Index, which assesses how Americans view business and labor market conditions, fell sharply to 134.3 from 144.0. This decline indicates that fewer consumers believe business conditions are good or that jobs are plentiful. At the same time, the Expectations Index, which reflects consumers’ outlook for the next six months, slipped slightly to 83.8, remaining just above the level typically associated with recession concerns.
A number of factors contributed to the deterioration in consumer sentiment. Rising interest rates remain a key source of anxiety, as the Federal Reserve continues its cautious approach to monetary policy. Even though inflation has cooled from the peaks seen in 2022 and early 2023, it continues to weigh on household budgets, with the average 12-month inflation expectation inching up to 5.3 percent in January. Consumers are increasingly concerned about the impact of persistent inflation on their purchasing power, savings, and future financial security.
Tightening credit conditions have also played a role in diminishing confidence. Many households, especially those with variable-rate debt or plans to finance major purchases, are feeling the effects of higher borrowing costs. This includes auto loans, mortgages, and credit card balances, all of which have become more expensive in recent months. Financial institutions have also become more selective in extending credit, which adds another layer of challenge for consumers looking to maintain or expand their spending.
Interestingly, the decline in consumer confidence was not evenly distributed across all demographics. Younger consumers under the age of 55 reported the most significant drop in sentiment, particularly those in higher income brackets. Households earning over $125,000 a year showed the steepest declines in optimism, likely reflecting concerns about asset markets, investment volatility, and housing affordability. On the other hand, consumers aged 55 and over, and those in lower income brackets, reported relatively stable or even slightly improved sentiment. This may be due in part to cost-of-living adjustments in Social Security payments and continued demand for hourly labor that benefits older and lower-wage workers.
Despite the pessimism, certain economic indicators remained robust. The job market has continued to show resilience, with unemployment staying low and job creation remaining steady. December retail sales also provided some positive momentum, rising 0.4 percent and capping a solid holiday shopping season. However, the disconnect between strong employment data and declining consumer confidence suggests that other pressures, such as housing costs and healthcare expenses, may be eroding the perceived benefits of job growth.
Experts caution that while the headline numbers of economic performance—such as GDP growth and payroll additions—are important, consumer sentiment is equally critical in forecasting future economic activity. Consumer spending accounts for approximately two-thirds of U.S. GDP, meaning shifts in household sentiment can have direct implications for overall economic performance. A prolonged dip in confidence could lead to more cautious spending patterns, which in turn might slow down the pace of economic expansion.
Dana M. Peterson, Chief Economist at the Conference Board, noted that consumer confidence has fluctuated within a relatively narrow band over the past two years. However, the latest data suggests that consumers are becoming increasingly concerned about future economic conditions. Peterson emphasized that the drop in January was driven primarily by less favorable views on business conditions and job availability in the short term.
With the Conference Board’s survey conducted in mid-January, the data reflects pre-inauguration sentiment ahead of President Donald Trump’s second term. Some analysts speculate that uncertainty over future trade policies, fiscal spending, and regulatory changes may have contributed to a more cautious outlook among consumers. Although the administration has signaled plans to support economic growth, the path forward remains unclear, especially with global economic conditions also showing signs of stress.
Looking ahead, many economists expect consumer sentiment to continue edging lower in February and possibly into early spring before stabilizing. Much will depend on inflation trends, Federal Reserve decisions on interest rates, and the political and fiscal direction taken by the new administration. In the meantime, businesses and policymakers alike are likely to keep a close eye on how consumer attitudes evolve, as they remain a key barometer of the country’s economic health.
