Consumer sentiment nosedives

Consumer sentiment in January fell to its lowest level since October 2016, or directly before the presidential election.

That’s  according to the University of Michigan index, which declined  to 90.7 in January from 98.3 in December. Economists polled by MarketWatch forecast a 97.5 reading.

Most worrisome was the sharp drop in the consumer expectations index, which fell to 78.3 in January, from 87.0 in December. The report’s year-ahead  national economic outlook was the worst since mid-2014, which could be a sign that U.S. consumers will rein in discretionary spending in the months ahead.

"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," said Richard Curtin, chief economist for the survey. “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 growth slowdown, it doesn’t yet indicate the start of a sustained economic downturn, according to Curtain, who said strength in personal finances will continue to support consumption expenditures at favorable levels in 2019.

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