After a banner year for consumer confidence, the mood of Americans hit a year-end lull as many households wait to see how they will be affected by an overhaul of the U.S. tax code.
The two main measures of consumers’ economic sentiment both declined slightly in December after reaching major milestones earlier in the year.
The Conference Board said Wednesday its measure of U.S. consumer confidence fell in December after having reached its highest level in 17 years in November. The University of Michigan said Dec. 22 that its consumer sentiment index declined in November and December. That measure’s average level in 2017 has been the highest since the year 2000.
The decline in the Conference Board measure was fed by a softening outlook for business and job prospects. Consumers’ view of current conditions, meanwhile, improved somewhat.
That suggests that they will continue to spend, supported by a strong labor market, analysts said.
“The details show that there is no fundamental reason to be concerned about confidence,” said James Bohnaker of IHS Markit.
Meanwhile, the decline in expectations wasn’t enough to reverse months of strengthening sentiment.
“Despite the decline in confidence, consumers’ expectations remain at historically strong levels, suggesting economic growth will continue well into 2018,” said Lynn Franco, director of economic indicators at the Conference Board.
Hanging over consumers is the prospect of the biggest changes to the tax code in a generation, passed by Congress and signed by the president earlier this month. The surveys were mostly conducted by mid-December, before the final version of the bill was signed but when its passage appeared assured. Many households remain uncertain about whether their taxes will rise or fall under the new law.
In a Wall Street Journal/NBC poll conducted Dec. 13-15, 17% of respondents said their families would pay less in taxes under the measure, while 32% say they would pay more.
Independent analyses of the tax code suggest about 80% of households will see at least somewhat lower taxes. But many of those may not know whether their taxes will fall until they file for 2018.
Still, some uncertainty should moderate as new paycheck withholding amounts take effect in early 2018.
“While the mostly small gains in take-home pay may not spark an uptick in optimism, those gains would act to dampen any renewed pessimism,” said Richard Curtin, the chief economist of the Michigan sentiment survey.
According to results from the Michigan survey, consumers have “nearly an equal split” between those who believe the tax changes will help and those who believe it will hurt. Views on whether the tax changes will be beneficial are split along party lines, Mr. Curtin said.
Political polarization has been a recurring theme of the sentiment and confidence indexes this year. Measures of confidence soared shortly after the election of President Donald Trump in November 2016, as did the stock market, in a phenomenon known as the “Trump bump.” The enthusiasm has been largely partisan, with Republicans feeling dramatically more optimistic about the U.S. economy while Democrats have been slightly more pessimistic. That drove overall sentiment readings higher in 2017.
The retrenchment of confidence in December was modest. The Conference Board’s measure fell to 122.1 in December from 128.6 in November. Economists surveyed by The Wall Street Journal had expected a December reading of 128.2. The index is defined so that 100 equals the level of confidence in 1985.
Source: Dow Jones