Following a strong rise in November, the U.S. consumer morale declined sharply in December, dragged down by concerns about future economic conditions.

The Conference Board's Consumer Confidence Index declined by 8.1 points to 104.7, moving back into the mid-range levels observed over the past two years.

The most significant drop occurred in the Expectations Index, which fell by 12.6 points to 81.1, teetering just above the critical threshold of 80. Historically, values below this level have been associated with recessionary periods.

"Compared to last month, consumers in December were substantially less optimistic about future business conditions and incomes. Moreover, pessimism about future employment prospects returned after cautious optimism prevailed in October and November," Dana M. Peterson, chief economist at The Conference Board.

Current Conditions: Labor Market Strong, Business Sentiment Weakens

Consumers' assessment of the present economy was mixed in December. Labor market sentiment improved, with 37.0% of respondents stating jobs were "plentiful," up from 33.6% in November, while those saying jobs were "hard to get" fell to 14.8% from 15.2%.

However, business conditions showed signs of deterioration. The share of consumers reporting that business conditions were "good" declined to 19.1% from 21.6%, while those describing them as "bad" increased to 16.7% from 15.3%.

Future Expectations Show Growing Pessimism

"While weaker consumer assessments of the present situation and expectations contributed to the decline, the expectations component saw the sharpest drop," Peterson added.

The sharp drop in the Expectations Index highlights a growing sense of unease about the future.

Only 21.7% of respondents expected better business conditions in the next six months, down from 24.7% in November. Meanwhile, the percentage anticipating worse conditions rose to 18.3% from 15.9%.

Labor market optimism also faded. The share of consumers expecting more jobs to become available dropped to 19.1% from 22.8%, while those anticipating fewer jobs increased to 21.3% from 17.9%.

Personal income prospects mirrored this negative trend, with only 17.2% expecting their incomes to increase, down from 20.7% in November. Those expecting incomes to decline rose to 14.3% from 12.1%.

December brought a dip in stock market optimism. The percentage of consumers expecting stock prices to rise in the next year fell from a record high of 57.2% in November to 52.9%. Those anticipating a decline in stock prices increased from 21.7% to 25%.

Interest rate expectations were mixed. The share of consumers expecting rates to rise ticked up slightly to 48.5%, while those expecting rates to fall slipped to 29.3%. These shifts reflect lingering uncertainty about the Federal Reserve's monetary policy trajectory.

Concerns about tariffs also increased, with 46% of consumers expecting tariffs to raise the cost of living, while 21% believed tariffs could create more U.S. jobs.

The S&P 500 index – as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) – was up 0.2% by the time of this writing Monday. The index tracking the 500 largest U.S. companies has climbed nearly 25% year to date, matching the gains recorded in 2023.

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