Consumers showed less confidence in January as the impact of the omicron variant weighed on expectations, according to a report from the Conference Board on Tuesday.
The headline index slid to 113.8 from 115.2 in December, snapping a string of gains since September, when the economy came out of the delta wave.
The fast-spreading omicron variant, while less deadly, has had a significant impact on spending and economic activity across the country as cases and hospitalizations have soared.
If history continues to repeat itself—as in the case of the delta variant—we should expect confidence to slide even more for at least one more month barring any new economic shocks.
The component for expectations inside the index was the main driver of the decline in the consumer confidence measure, dropping to 90.8 on the month from 95.4 previously.
The moderation in growth prospects was to blame for the decline in expectations, according to the report. Still, January’s reading was slightly higher than November’s reading of 90.2, when the economy was believed to be marching toward robust growth in the last quarter.
Labor differential—another important component that is historically correlated with the unemployment rate—ticked down in January to 43.8 from 44.2. Because the component measures the difference between survey responses for jobs that are plentiful and jobs that are hard to get, the labor market from a consumer perspective remained tight.
But the omicron variant and the current concern with inflation did not seem to sway consumers from planning more purchases in the next six months. Buying intentions in the next six months increased for all categories surveyed: automobiles, homes and major appliances.
The reason is that consumers are expecting inflation to ease in the coming months. The one-year inflation expectations in December slowed by 0.1 percentage point to 6.8%. Although that is still elevated, it was an encouraging sign as the figure declined for the second straight month.
So far, consumer confidence has moved in a similar pattern whenever there is a new wave of the coronavirus. We should expect confidence to stay on a downward trend until the omicron variant’s surge subsides.