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Consumer Confidence Tumbles to 12‑Year Low, But Spending Data Shows Resilience

by Daniel Foster - Senior Editor, Economy
by Daniel Foster - Senior Editor, Economy

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Consumer Confidence Plummets, But is the Economy Really at Risk?

Table of Contents


A Significant Drop in consumer confidence has sparked concerns about the health of the United States economy, but experts caution against drawing hasty conclusions. A recent report indicates that confidence levels have reached a 12-year low this january, triggering debate about potential impacts on consumer spending, the primary driver of economic growth.

The Confidence Dip: A Cause for Concern?

The Consumer confidence Index (CCI) experienced a surprising downturn this month, raising red flags among economists. Dana Peterson, Chief Economist at The Conference Board, noted that the collapse in confidence reflects increasing anxieties surrounding both current conditions and future expectations. All five key components of the Index showed deterioration, reaching levels not seen since May 2014, even surpassing the depths of the Covid-19 pandemic.

However, mirroring similar trends, the University of michigan’s consumer Sentiment Index also registered subdued sentiment in January, remaining near its lowest point since 2022. Despite these pessimistic signals, alternative indicators present a more nuanced picture.

Beyond Surveys: Examining Hard Economic Data

While consumer sentiment provides a valuable snapshot of public mood, its predictive power regarding economic outcomes is frequently enough debated. Historical data suggests a weak correlation between survey results and actual economic performance, leading manny analysts to advocate for a cautious interpretation of current findings.

focusing on concrete economic data offers a contrasting perspective. Figures indicate that Personal Consumption Expenditures (PCE), a key measure of consumer spending, rose 5.4% year-over-year through November—a moderate, stable pace. More recent data, including the Redbook Index, which tracks same-store sales, shows a continuation of this growth trend, with a 7.1% year-over-year increase through January 24th, consistent with recent months.

The Dallas Fed’s weekly Economic Index (WEI) reinforces this view, demonstrating growth comparable to recent history. As of January 17th, the WEI remained above 2%, aligning with the 2.3% four-quarter gross Domestic Product (GDP) growth observed through the third quarter of 2025.

Why is consumer confidence low even though consumer spending remains strong?

consumer Confidence Tumbles to 12‑Year Low, But Spending Data Shows Resilience

Recent economic indicators paint a perplexing picture: consumer confidence has plummeted to levels not seen in over a decade, yet consumer spending remains surprisingly robust. This disconnect is fueling debate among economists and leaving both businesses and individuals wondering what it all means for the future of the economy. Let’s break down the key factors at play and what this divergence suggests.

The Confidence Crisis: What’s Driving the Downturn?

The January 2026 Consumer Confidence Index,released by the Conference Board,registered a reading of 85.2 – the lowest since December 2014. Several factors are contributing to this significant drop:

* Persistent Inflation: While inflation has cooled from its 2022 peak,prices for essential goods and services remain elevated. Concerns about future price increases continue to weigh heavily on consumers’ minds. Grocery bills, energy costs, and housing expenses are especially sensitive areas.

* Geopolitical Uncertainty: Ongoing global conflicts and political instability are creating a sense of unease. These events introduce volatility into financial markets and raise fears about potential economic disruptions.

* Interest Rate Hikes: The Federal reserve’s aggressive interest rate hikes,implemented to combat inflation,have increased borrowing costs for consumers. This impacts everything from mortgages and auto loans to credit card debt.

* Labor Market Concerns: Despite a historically low unemployment rate,there are growing anxieties about potential job losses. Layoffs in certain sectors, particularly technology, are contributing to this sentiment.

* Debt Levels: Household debt is at a record high, leaving many consumers feeling financially vulnerable. This includes mortgage debt, student loans, auto loans, and credit card balances.

Spending Holds Strong: Why the Disconnect?

Despite the gloomy outlook reflected in consumer confidence surveys, actual spending data tells a different story.Retail sales figures for January 2026 showed a modest increase of 0.5%,indicating that consumers are still willing to open their wallets. Several factors explain this resilience:

* Strong Labor Market: The continued strength of the labor market is providing a safety net for many consumers. Those who are employed feel more secure in their ability to spend.

* Pent-Up Demand: After years of pandemic-related restrictions, consumers are eager to spend on experiences – travel, dining out, and entertainment. This pent-up demand is supporting spending in these sectors.

* Savings Buffers: Many households accumulated savings during the pandemic, thanks to stimulus checks and reduced spending opportunities. While these savings are being depleted, they are still providing some cushion.

* Credit Availability: Despite higher interest rates,credit remains relatively accessible for many consumers. This allows them to continue spending even if their savings are dwindling.

* Shift in Spending Patterns: Consumers are becoming more discerning about their purchases, prioritizing essential goods and services while cutting back on discretionary spending. this shift in spending patterns is helping to sustain overall demand.

The C2C Economy & Consumer Behavior

Interestingly, the rise of the C2C (Consumer-to-Consumer) economy, fueled by platforms like eBay, Facebook Marketplace, and Craigslist, is also playing a role. Consumers are increasingly turning to these platforms to buy and sell goods, frequently enough seeking better deals and extending their purchasing power. This trend highlights a growing emphasis on value and affordability. The C2C market provides an outlet for consumers to monetize possessions and offset rising costs, contributing to continued spending activity.

Sector-Specific Insights: Where is the Money Going?

The resilience in consumer spending isn’t uniform across all sectors. Here’s a breakdown of where we’re seeing strength and weakness:

* Services: Spending on services – such as healthcare, education, and transportation – remains relatively stable, as these are frequently enough considered essential.

* Travel & Leisure: Demand for travel and leisure activities continues to be strong, driven by pent-up demand and a desire for experiences.

* Non-durable Goods: Spending on non-durable goods – such as food and beverages – is holding up well,as these are also essential items.

* Durable Goods: Spending on durable goods – such as appliances and furniture – is showing signs of slowing down, as consumers postpone larger purchases in response to higher interest rates and economic uncertainty.

* Retail: Brick-and-mortar retail is facing challenges as consumers increasingly shift their spending online. E-commerce continues to grow, but at a slower pace than during the pandemic.

Implications for Businesses

This divergence between consumer confidence and spending has significant implications for businesses:

* Cautious optimism: Businesses should remain cautiously optimistic about the near-term outlook. While consumer confidence is low, spending data suggests that demand is still present.

* Focus on Value: Consumers are increasingly price-sensitive. Businesses should focus on offering value and affordability to attract and retain customers.

Senior Editor, Economy An award-winning financial journalist and analyst, Daniel brings sharp insight to economic trends, markets, and policy shifts. He is recognized for breaking complex topics into clear, actionable reports for readers and investors alike.

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