U.S. Confidence Takes a Step Back in January

The Conference Board's index of Consumer Confidence declined in January to 61.1 from 64.5, defying market expectations for an increase to 68.0.

Most of the headline contraction came from a decline in the present situation index, which fell to 38.4 from 46.5 the month prior. The future expectations index held relatively steady at 76.2 (from 77.0 in December)

The labor index fell modestly in January, slipping to -37.4 from -35.0 in December. This, however, remains above the -43 readings registered in the late summer and early fall of 2011.

Key Implications

Overall this was a disappointing report. With the global economy slowing and domestic fiscal policy a drag on growth, the well being of the U.S. consumer is crucial to the recovery. Today's number, coupled with yesterday's disappointing personal spending data, offers a reminder that underlying demand is still too soft to absorb the economy's excess slack.

That being said, the labor index's performance was not all bad. While the sub-index's decline this month was discouraging, it remains at a level consistent with the stronger job growth we've seen since November, and offers a promising sign that the job market's recent momentum will be sustained in this Friday's employment report.