Consumer confidence falls to 18-month low on government shutdown
U.S. consumer confidence tumbled this month to its lowest reading in a year and a half, tested by the partial government shutdown and roiling financial markets. Still, consumer spirits remain robust by historic standards.
The Conference Board, a business research group, said Tuesday that its consumer confidence index fell to 120.2 in January, down from 126.6 in December and the lowest level since July 2017.
The index measures consumers' assessment of current economic conditions and their expectations for the next six months, both of which dropped in January. Consumers' expectations for the future dropped to the lowest point since October 2016.
The month before, the index dropped 9.8 points, making for the biggest two-month loss in over a decade, Oxford Economics noted. "If history is any guide, this will partially reverse," the research firm wrote.
The government reopened Monday after the 35-day shutdown, the longest federal closure in U.S. history. The shutdown is expected to cause slight permanent harm to the economy — about $3 billion in lost economic activity — according to a report from the Congressional Budget Office on Monday.
The January decline "is more the result of a temporary shock than a precursor to a significant slowdown in the coming months," said Lynn Franco, the Conference Board's senior director of economic indicators. He noted that "shock events" such as government shutdowns "tend to have sharp, but temporary, impacts on consumer confidence."
Moody's Investors Service predicted that the shutdown would have a "limited" impact on U.S. GDP. But if the government shuts down again in three weeks, which President Donald Trump has threatened, the economic hit could be more severe.
"Looking forward, although the government shutdown has ended, the temporary nature of the three-week funding agreement and the continued impasse on border security mean that uncertainty and political gridlock will persist for some time, continuing to weigh on consumer confidence," David Deull, principal economist at IHS Markit, said in a note.
The U.S. economy is healthy. Economic growth clocked in at a brisk 3.4 percent annual pace from July through September after surging 4.2 percent in the second quarter. At 3.9 percent, the unemployment rate is near its lowest level in five decades.
The U.S. stock market is steadier after its wild gyrations and heavy losses late last year. Still, investors have a lot to worry about. The Federal Reserve has gradually been raising interest rates. A government report issued Monday predicts that U.S. economic growth will slow as the effects of President Donald Trump's tax cuts for businesses begin to drop off. The Congressional Budget Office report sees the economy growing by 2.3 percent this year, a marked slowdown from 3.1 percent in 2018.
Global growth is sputtering. And the U.S. and China — the world's two biggest economies — are locked in a trade war that threatens to disrupt global commerce.
