US consumer confidence shrugs off stock market slump

The increase in the Conference Board's measure of consumer confidence to a three-month high of 98.1 in January, from 96.3, indicates that households are not buying into the pessimism in financial markets. It also suggests that the apparent slowdown in real consumption growth to 2% in the fourth quarter was temporary. At its current level, confidence is consistent with consumption growth of nearer 3%.

The rise in the headline index was due to an improvement in the most forward-looking expectations index to 85.9, from 83.0, with the further declines in gasoline prices presumably more than offsetting the negative impact of the slump in stock markets since the start of the year.

Elsewhere in the survey, the proportion of respondents saying that jobs were plentiful in January once again almost exactly offset the proportion saying that jobs were hard to get. The net differential between the former and the latter, -0.6, has historically been consistent with an unemployment rate of 5%, i.e. it's a good check that the unemployment rate is an accurate gauge of current labour market slack.

The proportion of households expecting a rise in their incomes increased to 18.1, from 16.3. Even though the proportion expecting a decline in incomes increased to 10.8, from 9.5, that still mean the net proportion expecting an increase in incomes increased to a level that historically has been consistent with growth in average hourly earnings of roughly 2.7%.

"The 12-month ahead inflation expectations index edged down to 4.8%, from 4.9%, but it is basically unchanged over the past 12 months, so shouldn't alarm Fed officials worried about a more significant decline in expectations", noted Capital Economics in a research note.