US: Does Robust Personal Consumption Conceal Hidden Concerns?

■ Consumer confidence is deteriorating at a pace comparable to the early stages of an economic recession, reflecting the plight of ordinary households. 

■ The expansion in personal consumption is driven mainly by high-income groups, and the fragility of the consumption structure warrants attention. 
 
   The US Consumer Confidence Index for January, released on January 27, was 84.5, a sharp drop of 9.7 points from the previous month, marking the lowest level since May 2014. Both the Current Situation Index (113.7, down 9.9 points month-on-month) and the Expectations Index (65.1, down 9.5 points month-on-month) declined significantly. In both sub-items of the Current Situation Index (the current state of the economy and employment) and the three sub-items of the Expectations Index (economic, employment, and income prospects for the next six months), the share of responses rated "good" decreased across all five items, while the share rated "poor" increased in four items, except for "income prospects for the next six months," indicating a significant deterioration in consumer confidence. 
 
   The Current Situation Index within the US Consumer Confidence Index is highly correlated with the economic cycle; historically, its changes have slightly led the economic cycle. Because this indicator captures household economic conditions early and exhibits clear cyclical fluctuations, it can be considered an early warning sign of the economy. In the early stages of an economic recession, a sharp decline in the Current Situation Index is typically observed in the short term. According to the Sahm Rule, a recession indicator that measures the decline of a three-month average relative to its highest value over the past year, the Current Situation Index has fallen by more than 20 points from its peak before every recession since 1980. With the sharp decline in January, this indicator has fallen by more than 20 points from its peak for the first time since the 2020 recession. The recent deterioration in consumer confidence can be assessed as equivalent to the levels seen in the early stages of the 2007 or 2020 recessions. 
 
   A similar survey, conducted by the University of Michigan, showed that the consumer confidence index was 56.4 in January, up 3.5 points from the previous month, indicating an upward trend. Not all the latest data points to a sharp deterioration in consumer confidence. However, it is important to note that since the COVID-19 pandemic in 2020, the Current Situation Index in the two surveys has shown a significant divergence. The University of Michigan's Current Situation Index is nearing the lows of 2008 or 2022. Against this backdrop, the deteriorating consumer confidence reflected in the Conference Board survey should not be taken lightly. Due to differences in the survey components, the University of Michigan's survey more readily reflects the impact of income and price factors; while the Conference Board survey covers approximately 5,000 households, a significantly larger sample size than the University of Michigan survey (preliminary estimate approximately 300 households, final estimate approximately 500 households), and is therefore considered to more broadly reflect the overall household situation. 
 
   From a macro perspective, personal consumption as a whole continues its upward trend, but multiple data points indicate that this expansion is primarily driven by high-income groups benefiting from rising asset prices. The deterioration in confidence among ordinary households and the increased sensitivity of personal consumption to asset prices highlight the potential vulnerabilities in the current consumption structure.