U.S. Consumer Confidence Halts Three-Month Uptrend in December Amid Tariff Concerns

By TrendForce

2024-12-24

The U.S. Conference Board consumer confidence halted its three-month uptrend due to uncertainties surrounding President Trump’s policies, According to the Conference Board on December 23.

The Consumer Confidence Index (CCI) for December stood at 104.7, a decline of 8.1 points from the previous month and significantly below market expectations of 112.9. The Present Situation Index, which measures current business conditions and the labor market, edged slightly lower to 140.2 (prior: 141.4). Meanwhile, the Expectations Index, reflecting short-term outlooks, fell sharply to 81.1 (prior: 93.7).

The report indicated that although consumers showed optimism regarding recent and future labor market conditions, their expectations for business conditions and income growth deteriorated significantly.

This decline largely reflects concerns that Trump’s future tariff policies could raise living costs. Written responses from consumers showed that mentions of "politics" and "tariffs" increased in December compared to November. Notably, 46% of consumers anticipated that tariff policies would increase their living costs, while 21% believed the policies could create more jobs in the U.S.

In terms of household spending plans, despite the Federal Reserve initiating a rate-cut cycle in September, the 30-year fixed mortgage rate remains near a 20-year high. As a result, plans to purchase homes declined slightly in December. However, car-buying plans continued to increase, driven by recent dealer discounts, tariff concerns, and the elimination of electric vehicle subsidies, which boosted automotive demand.

Key Focus This Week: U.S. New Home Sales & China Industrial Profit

Last week, the Federal Reserve's hawkish rate cut led to noticeable declines across U.S. equity sectors, with the S&P 500 index falling 2%, closing at 5930.85 points. In the bond market, the 10-year U.S. Treasury yield climbed back to approximately 4.53%, reflecting a narrower rate-cut trajectory. Simultaneously, the U.S. Dollar Index surged, nearing the 108 threshold, supported by rising Treasury yields. Key Economic Data from Last Week U.S. Federal Reserve Rate Decision: The Federal Reserve announced a 25-basis-point rate cut, lowering the target range to 4.25%–4.5%. The accompanying statement introduced the phrase "extent and timing" of future rate cuts, signaling a slower pace of monetary easing. In its latest Summary of Economic Projections, the Federal Reserve revised upward its U.S. GDP growth forecasts for this year and next, reflecting the robust performance of recent economic data. The GDP growth projection for 2024 was raised to 2.5% (prior: 2.0%), while the 2025 forecast was increased to 2.1% (prior: 2.0%). However, the slow decline in core services inflation and uncertainties stemming from Trump-era tariff policies prompted the Federal Reserve to revise its core inflation projections for 2024–2026 upward. Core inflation is now expected to reach 2.8% (prior: 2.6%) in 2024, 2.5% (prior: 2.2%) in 2025, and 2.2% (prior: 2.0%) in 2026, with inflation projected to return to the 2% target range by 2027. The latest Dot Plot indicates that the policy rate for 2025 is projected to decrease by 50 basis points to a range of 3.75%–4.00% (prior: 3.25%–3.50%), while the rate for 2026 is expected to be further reduced by 50 basis points to 3.25%–3.50% (prior: 2.75%–3.00%). Additionally, the long-term neutral rate has been lowered by 25 basis points, now falling within a range of 3.00%–3.25% (prior: 2.75%–3.00%). The overall rate path has narrowed by 50 basis points compared to the September projection, reflecting the anticipated decline in core inflation and uncertainties associated with Trump-era policies. This adjustment highlights a more hawkish stance by the Federal Reserve, aiming to preemptively temper market expectations for future rate cuts. Read more at Datatrack Japan Rate Decision: The Bank of Japan (BOJ) decided to keep its interest rate unchanged at 0.25% during its December meeting. The BOJ stated that domestic wage growth and uncertainties surrounding the outlook for the global economy were the primary reasons for maintaining the current rate. BOJ Governor Kazuo Ueda noted that the central bank aims to gather more information on domestic wage growth before considering the next rate hike. Additionally, policies under the next U.S. president, Donald Trump, were also highlighted as a factor in the BOJ’s deliberations. Governor Ueda further explained that the trajectory of wage growth would likely become clearer after the preliminary negotiations during the "Shunto" spring wage discussions in March and April. Consequently, markets have adjusted their expectations, now anticipating the BOJ's next rate hike to occur after March. Read more at Datatrack U.S. Retail Sales: U.S. retail sales in November increased by 3.8% year-over-year (prior: 2.9%) and 0.7% month-over-month (prior: 0.5%), both exceeding market expectations of 3.6% and 0.6%, respectively. The growth in retail sales was primarily driven by a 6.5% increase in automotive-related sales (prior: 3.7%) and a 9.8% surge in online store sales (prior: 6.9%). Excluding automobiles and gasoline stations, core retail sales rose by 3.9% year-over-year (prior: 3.8%) and 0.2% month-over-month (unchanged from the prior figure). Further excluding food services and building materials, the control group core retail sales grew by 4.3% year-over-year (prior: 3.7%) and 0.4% month-over-month (prior:-0.1%), indicating that overall consumer spending remains resilient. Read more at Datatrack   Key Economic Data for This Week U.S. Conference Board Consumer Confidence Index (12/23): The U.S. Consumer Confidence Index rose to 111.7 in November (prior: 109.6), marking the second consecutive month of improvement, driven by better assessments of current labor market conditions and future expectations. The market anticipates the index will further increase to 112.9 in December. Read more at Datatrack U.S. New Home Sales (12/24): New home sales in October fell short of market expectations, impacted by hurricane disruptions. As these short-term effects subside, the market expects U.S. new home sales to rebound to 666,000 units in November (prior: 610,000 units). Read more at Datatrack China Industrial Profits (12/27): Weakened domestic demand dragged cumulative industrial profit growth in China down to -4.3% year-over-year in October. The Producer Price Index (PPI), reflecting corporate pricing, showed no significant improvement, with November PPI declining by 2.5% year-over-year, a 0.4 percentage point drop from the prior month. The market expects cumulative industrial profit growth in November to decline further. Read more at Datatrack   Japan Tokyo Core CPI（12/27）：With the gradual phase-out of energy subsidy policies starting in November, electricity and city gas prices are expected to drive further increases in energy-related costs. The market forecasts Tokyo's core CPI to rise to 2.5% year-over-year in December (prior: 2.2%). Read more at Datatrack

2024-12-25

Beijing and Shanghai Retail Sales Tumble in November, Easing Policies Fail to Boost Demand

China's November retail sales indicate a sharp decline in consumer demand in Beijing and Shanghai, underscoring the challenges of boosting domestic consumption despite recent easing measures. China's overall retail sales grew by 3.0% year-on-year in November, a deceleration of 1.8 percentage points from the previous month, according to National Bureau of Statistics of China (NBS). However, the first-tier cities of Beijing and Shanghai experienced even steeper declines. Retail sales in Beijing fell by 14.1% year-on-year (prior: +0.7%), while Shanghai saw a similar drop of 13.5% (prior: +10.9%). While part of the decline can be attributed to the pull-forward effect of consumption during the "Double 11" shopping festival, which boosted October’s figures, the November slowdown remains pronounced, even when compared to September, revealing a broader trend of weakening consumer activity. In addition to the dampening effect on consumer confidence caused by the weak real estate market, some economic experts have pointed out that the withdrawal of foreign capital has also impacted consumption momentum in first-tier cities. With many senior executives from foreign companies concentrated in Beijing and Shanghai, the departure of this high-spending demographic has inevitably had a significant impact on overall local consumption demand. The mobility of the younger population may also play a crucial role. During periods of stable economic growth, younger demographics tend to exhibit higher consumption capacity than older age groups. However, as economic growth slows and job opportunities in first-tier cities diminish, some younger individuals are opting to leave these cities in search of opportunities elsewhere, further exacerbating the downward pressure on consumption. Despite the introduction of a series of easing policies since September, domestic demand has yet to show substantial improvement, raising concerns about China's ability to achieve its 5% GDP growth target for the year. In response to mounting economic pressures, the Chinese government pledged at the recent Central Economic Work Conference and Politburo meeting to adopt more proactive fiscal policies and moderately accommodative monetary policies in the coming year. While specific measures and their scale have yet to be announced, Reuters reports suggest that the government may issue RMB 3 trillion in special sovereign bonds next year to stimulate domestic demand, support corporate equipment upgrades, and provide funding for investments. Read more at Datatrack

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