Conference Board: Consumer confidence declines in January

Thanks in part to higher Social Security taxes that reduced American paychecks, the Conference Board’s Consumer Confidence Index fell for the second consecutive month. The January index stands at 58.6, down from 66.7 in December, erasing all the gains made in 2012.

Lynn Franco, director of economic indicators at The Conference Board, said consumers are more pessimistic about the economic outlook and, in particular, their financial situation. “The increase in the payroll tax has undoubtedly dampened consumers’ spirits, and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock,” Franco said.

The Social Security tax on employees was reduced from 6.2% to 4.2% as part of the 2009 federal stimulus bill, but the reduction was meant to be temporary.

Meanwhile, consumers’ appraisal of current conditions and the labor market have become more negative. In January, people claiming business conditions are “good” declined to 16.7% from 17.2%, while those stating business conditions are “bad” increased to 27.4% from 26.3%. Meanwhile, survey respondents saying jobs are “plentiful” declined to 8.6% from 10.8%, while those claiming jobs are “hard to get” increased to 37.7% from 36.1%.

In addition, fewer consumers are optimistic about the short-term outlook, as those expecting business conditions to improve over the next six months declined to 15.4% from 18.1%. There is one metric on the positive side of the ledger: those expecting business conditions to worsen declined slightly to 20.6% from 21.1%.