Government Shutdown Helps Drag Consumer Sentiment to Lowest Level Since 2016

As the U.S. government shutdown entered its 28th day on Friday, the University of Michigan released its monthly consumer sentiment data, which fell to the lowest level since October 2016 amid mounting worries about the U.S. and global economy.

The January index fell to 90.7, a 7.7 percent drop month over month from December and a 5.2 percent drop from January 2018. The index also came in well below economists’ consensus estimate of 96.4.

The data demonstrates the growing worries of American households and businesses, who in the past year have witnessed historic volatility on Wall Street, a costly ongoing trade war, economic slowdowns in China and Europe, uncertainty over the Federal Reserve’s plans for monetary policy and the longest government shutdown in U.S. history.

“Aside from the direct economic impact from these various issues on the economy, the indirect effect meant that half of all consumers believed that these events would have a negative impact on [President Donald] Trump’s ability to focus on economic growth,” said Richard Curtin, chief economist for the Surveys of Consumers.

Still, the strength of other economic indicators could mitigate the impact on businesses’ bottom lines.

“While the January falloff in optimism is certainly consistent with a slowdown in the pace of growth, it does not yet indicate the start of a sustained downturn in economic activity,” said Curtin. “It is the strength in personal finances that will continue to support consumption expenditures at favorable levels in 2019. Nonetheless, consumers now sense a need to buttress their precautionary savings, which is typically done by reducing their discretionary spending. Evolving job and wage prospects, which were slightly weaker in early January, are critical to extending the current expansion.”

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