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Government shutdown dims consumer confidence

Consumer sentiment in January fell to its lowest level since Donald Trump was elected president.

That’s according to the University of Michigan Surveys of Consumers, whose Consumer Sentiment Index had a reading of reading of 91.2 in January, down from 98.3 in December. The shutdown was blamed for the overall decline.

Also, the Expectations Index fell to 79.9, down from 87.0 in December and the Current Economic Conditions Index fell to 108.8 from 116.1 in December, with both also falling to their lowest levels since Trump was elected.

The temporary end of the shutdown had only a small positive impact since the basic issues were postponed, not resolved, said Richard Curtin, University of Michigan economist and director of the surveys.

“The typical impact of such "crisis" events is short lived, with consumers quickly regaining lost confidence,” he said. “That is unlikely to occur this time as the deadline for resolution has only been extended until mid-February. If the standoff continues into late February, it could foster sustained declines in economic optimism among consumers.”

Even small spending cutbacks, occurring simultaneously across the majority of consumers, could push the economy into a recessionary downturn, Curtain warned.

“There is still time to avoid a sustained decline in confidence, but this would require an end to the standoff that has begun to damage consumer confidence and diminish spending prospects,” he said.

The current state of the national economy was judged to have significantly weakened in January due to the shutdown. Whereas in December, twice as many consumers judged the economy to have improved as worsened, in the January survey, equal proportions thought the economy had worsened as improved (43%).

And when asked about prospects for the year ahead, more consumers anticipated the economy to worsen than to improve, and this weakness was related to less positive job prospects. Just 19% anticipated lower unemployment in the year ahead, the lowest figure since mid-2016, while 33% expected increases.
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