US consumer sentiment hits lowest level since Trump election

The consumer sentiment index fell to 90.7 from 98.3 in December and 95.7 in January last year, missing expectations for a reading of 97.0.

Meanwhile, the index of current economic conditions fell to 110.0 from 116.1 in December and 110.5 in January 2017.

The index of consumer expectations slid to 78.3 in January from 87.0 the month before and 86.3 in the same month last year.

Surveys of Consumers chief economist Richard Curtin noted that the decline was most focused on prospects for the domestic economy, with the year-ahead outlook for the national economy judged the worst since mid-2014.

"The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.

"Aside from the direct economic impact from these various issues on the economy, the indirect effect meant that half of all consumers believed that these events would have a negative impact on Trump's ability to focus on economic growth. While the January falloff in optimism is certainly consistent with a slowdown in the pace of growth, it does not yet indicate the start of a sustained downturn in economic activity. It is the strength in personal finances that will continue to support consumption expenditures at favourable levels in 2019.

"Nonetheless, consumers now sense a need to buttress their precautionary savings, which is typically done by reducing their discretionary spending. Evolving job and wage prospects, which were slightly weaker in early January, are critical to extending the current expansion."

Andrew Hunter, senior US economist at Capital Economics, said the drop in the index illustrates that the continued government shutdown is starting to weigh on the broader economy.

"The fall was mostly driven by the expectations index, which plunged to 78.3 from 87.0, although the current conditions index also fell quite sharply. This could have been partly driven by the earlier volatility in financial markets and fears over the health of the economy. But the stock market rebounded steadily throughout the survey period, while gasoline prices have trended lower and private-sector labour market conditions remain strong. Accordingly, the now record-breaking Federal shutdown seems to have been the main factor weighing on sentiment.

"Admittedly, although 800,000 Federal employees are currently furloughed or working without pay, that represents only around 0.5% of all workers. But the associated disruption is clearly starting to mount and fears of endless gridlock in Washington will be growing. The precise impact on activity will all depend on how long the shutdown lasts. If it continues throughout the first quarter, however, which at this stage no longer looks out of the question, we suspect it could subtract up to 1.0%pts from annualised GDP growth, which would probably then come in at little more than 1.0% annualised."