Investing.com - U.S. consumer optimism waned in January, hitting its lowest level since President Donald Trump was elected, as a host of factors, including the partial government shutdown, weighed on sentiment.
The preliminary publication of the data for January from the University of Michigan's Consumer Survey Center showed that consumer sentiment decreased to 90.7 from 98.3 a month earlier.
Economists had forecast a drop to 97.
“The decline was primarily focused on prospects for the domestic economy, with the year-ahead outlook for the national economy judged the worst since mid-2014,” the surveyor’s chief economist Richard Curtin said.
“The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies,” Curtin explained.
The partial U.S. government shutdown, that entered its 28th day on Friday, was just one of the factors weighing on America’s optimism.
Chicago Federal Reserve President Charles Evans said last week that while the immediate effects of the shutdown on the U.S. $20.7-trillion economy would be small, the indirect, psychological impact could be substantial.
"Consumers get risk averse and start hunkering down, businesses start planning to do less, and you start magnifying these effects," Evans said.
ING economists also warned of the damage that a prolonged government closure could cause.
“The longer the shutdown lasts, the greater the risk of walkout and disruption at airports and crime agencies, as staff seek paid employment elsewhere this too will have negative economic implications,” they warned.
Amid the headwinds facing the U.S. consumer in 2019, these experts added the lagged effects of higher borrowing costs, fading support from the fiscal stimulus and weaker external demand at a time of rising trade protectionism.
“These factors will increasingly weigh on sentiment in 2019, which is likely to lead to a slowdown in consumer spending growth,” they said.
Curtin noted that the decline in the index was consistent with a slowdown in the pace of growth, but clarified that it does not yet indicate the start of a sustained downturn in economic activity.
“Nonetheless, consumers now sense a need to buttress their precautionary savings, which is typically done by reducing their discretionary spending,” Curtin said. “Evolving job and wage prospects, which were slightly weaker in early January, are critical to extending the current expansion.”