U.S. consumer confidence has just seen its biggest decline in four years as Americans continue to grapple with high food prices, high interest rates, a tightening job market, and the threat of tariffs triggering a global trade war. According to Bloomberg:
“US consumer confidence unexpectedly fell in January to a four-month low on less optimism about the labor market and the outlook for the broader economy … Inflation is easing only gradually, and while the labor market looks good on paper, jobseekers say it’s taking longer and longer to find work. And sentiment has been shaky as consumers assess how Donald Trump’s policies will affect the economy.”1https://www.bloomberg.com/news/articles/2025-01-28/us-consumer-confidence-drops-to-four-month-low-on-job-market
The Consumer Confidence Index (CCI) is administered by The Conference Board which was founded way back in 1916. It is a nonpartisan entity with over 1000 public and private members to whom it provides critical insights on pressing economic and business issues. They describe themselves as a “nonprofit thinktank and business membership organization that delivers Trusted Insights for What’s Ahead.”2https://www.conference-board.org/about
The Conference Board reported that consumer outlook turned negative in February specifically as it relates to business, jobs, and income:
Consumers’ outlook for business conditions turned negative in February.
- 20.2% of consumers expected business conditions to improve, down from 20.8% in January.
- 26.7% expected business conditions to worsen, up from 19.6%.
Consumers’ pessimism about the labor market outlook worsened.
- 18.4% of consumers expected more jobs to be available, down from 19.1% in January.
- 25.9% anticipated fewer jobs, up from 21.0% in January.
Consumers were less optimistic about their income prospects in February.
- 18.2% of consumers expected their incomes to increase, a slight uptick from 18.1% in January.
- But 13.7% expected their incomes to decrease, up from 12.3%.3https://www.conference-board.org/topics/consumer-confidence/press/CCI-Feb-2025
It’s important to note that consumers are often called the “engine” of the U.S. economy, so when their confidence turns sour — it could be a hint of major trouble ahead.
Why Consumer Mood Matters
How consumers feel about their personal finances and their comfort level with respect to spending and investing has long been considered a general reflection of the state of the economy. The feelings and attitudes of end-users, buyers, and purchasers carry tremendous weight for those involved in economic planning like bankers, businesses, and investors.
According to the St. Louis Fed, consumer confidence indexes reflect current economic conditions since they are generally released toward the end of that month and may provide an early indicator of the economy’s health. In addition, consumers’ survey responses often opine on future economic activity. Consumers are notoriously good at ‘dollar and cents’ forecasting and their insights could be an important leading indicator of the economy’s strength.4https://www.stlouisfed.org/publications/regional-economist/april-2003/consumer-confidence-surveys-do-they-boost-forecasters-confidence
And despite bullish financial markets, consumers remain on edge. Wall Street had been riding high on AI-fueled optimism for the past two years, and strong comparatives with the 1990’s market bubble are now arising. Reports abound of wild overvaluations, froth, and a financial bomb looking for a detonator. And February’s troubling CCI data has now triggered steep drops among big name tech stocks like Tesla, Meta, Nvidia and Palantir. The AI start-up frenzy with trillions in theoretical values fully unmoored to financials — has now been replaced by rising uncertainty and volatility — and U.S. consumers called it first.
According to Yahoo Finance:
“Consumers are less confident about the nation’s economy than they were a few months ago. Rising inflation and fears of an imminent global trade war owing to President Donald Trump’s proposed tariffs are denting consumers’ sentiment. This has been taking a toll on stocks, with volatility returning to the markets. Also, concerns over the Federal Reserve delaying its next rate cut till the second half of the year could keep markets volatile in the coming days.”5https://finance.yahoo.com/news/consumer-sentiment-hits-15-month-162500170.html
Is a Major Stock Correction Now Imminent?
There’s a lot of “correction chatter” around Wall Street these days and the reasons include everything from policy uncertainty, stubborn inflation, and increasing global risk to — it’s simply overdue.
Wall Street just completed one of its best 2-year stretches since the market ballooned on dot.com speculation back in the 1990’s. This has prompted comparisons to the infamous internet-based stock market bubble that started to form in 1995 and the subsequent market collapse in March of 2000 resulting in trillions of dollars in losses.6https://siliconangle.com/2024/02/24/dissecting-ai-boom-dotcom-lens
According to Franklin Templeton, the similarities between the dot.com hysteria and the AI frenzy may provide clues as to what lies ahead for investors in 2025:
“For many businesses, AI is perceived as a ‘winner-take-all’ opportunity or threat, with the ‘losers’ left empty handed. This has spurred a super cycle of investment spending with implications that transcend the technology sector. Like in the 1990s, we see coinciding mega trillion-dollar investment waves today, many in response to disruptive technology. Today’s investments are tied to power infrastructure upgrades, global supply chain redundancy, climate solutions and carbon reduction, and a US housing shortage. And similar to the 1990s, there are smoldering hotspots for geopolitical and economic crises. For the latter, this includes an ugly imbalance in commercial real estate, massive government deficits that need to be refinanced, and a precarious economic imbalance in China.”7https://www.franklintempleton.com/putnam-investments/articles/2024/revisit-the-90s-playbook-for-clues-to-2025-and-beyond
In many respects the AI fueled markets of 2025 are far more dangerous than the dot.com bubble simply due to sheer size. Many AI apps and services are “open” and free. They’re not only being adopted at breakneck speed by consumers but across countless industries like manufacturing, healthcare, finance, and education. In addition, they’re being researched, developed, and funded by major corporations like Google, Meta, Amazon, and Microsoft who could quickly sink the NASDAQ.
This is Why Gold is On Fire
As waning consumer confidence darkens economic outlook, consumption, and spending — it increases safe haven demand for gold. Add the prospect of historically over-valued markets and concerns about a sudden pullback, correction, or crash — and you have a 44% explosion in gold prices just in the past year.
“February’s plunge in consumer confidence marks the third consecutive month-on-month decline, a concerning trend given that consumer spending accounts for about two-thirds of U.S. economic activity. The fall in confidence was broad across age groups and incomes. Consumers felt more pessimistic about current and future labor market conditions as well as their income prospects. The share of consumers anticipating a recession over the next 12 months also hit a nine-month high.”8https://finance.yahoo.com/news/us-consumer-confidence-drops-most-012018992.html
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2 https://www.conference-board.org/about
3 https://www.conference-board.org/topics/consumer-confidence/press/CCI-Feb-2025
5 https://finance.yahoo.com/news/consumer-sentiment-hits-15-month-162500170.html
6 https://siliconangle.com/2024/02/24/dissecting-ai-boom-dotcom-lens
8 https://finance.yahoo.com/news/us-consumer-confidence-drops-most-012018992.html
