Consumer Confidence Takes a Hit

Despite a stable economy, public sentiment continues to trend downward. According to recent data, consumer confidence witnessed a significant drop in February, marking the largest decline since 2021. Surveys from both the Conference Board and the University of Michigan have echoed this trend, with business confidence also experiencing a notable dip.

  • According to recent polling, more respondents disapprove than approve of Trump's handling of the economy.
  • Although hard economic data since Trump's inauguration remains limited, available indicators suggest a relatively strong economic foundation.
  • The labor market has continued to show resilience in the U.S., with January experiencing strong job growth and a slight decline in the unemployment rate.
  • Additionally, unemployment insurance claims have remained consistently low, except in Washington, D.C., where cuts have led to an uptick.

While stock prices have seen recent fluctuations, they remain above Election Day levels. Meanwhile, declining bond yields and oil prices suggest mixed signals—concerns about growth but potential benefits for mortgage rates and gasoline prices.

A Slowdown In Europe

Wages in the eurozone rose at a slower pace during the three months through December as the economy stalled, paving the way for further reductions in the European Central Bank’s (ECB) key interest rate.

  • According to the ECB, wages negotiated between employers and labor unions increased by 4.12% in the fourth quarter of 2024 compared to the previous year, a slowdown from the 5.43% rise recorded in the preceding quarter.
  • Economists anticipate further wage slowdowns this year as inflation cools and workers moderate their demands. Several forward-looking indicators, including those tracked by the ECB, support this expectation.
  • The eurozone labor market, while still relatively tight, has begun to show signs of loosening, with the unemployment rate rising to 6.3% in December from 6.2% in November.
  • A recent purchasing managers’ survey pointed to further job losses, particularly in the manufacturing sector, which is experiencing its sharpest employment decline since 2012 outside of the Covid-19 pandemic.

The ECB has responded by lowering its key interest rate for the fifth time since June, with investors expecting additional cuts in the near future. While prices of energy, food, and manufactured goods have cooled since inflation peaked in late 2022, labor-intensive service costs remain high.

However, policymakers are increasingly confident that inflation will return to their 2% target later this year from 2.5% in January. For now, wages continue to outpace consumer prices, helping to restore some of the spending power lost during the inflation surge and supporting modest growth in the eurozone economy.

Exploring the Confidence Decline

Several factors may explain the declining confidence levels. Post-election optimism, particularly among businesses, may have contributed to an unsustainable spike, with the current drop reflecting a return to normal. Additionally, political affiliations have played a role, with Democrats showing increased pessimism while Republicans remain optimistic. However, independents' outlook has remained largely unchanged.

A major driver of economic anxiety is inflation. January’s consumer price inflation, recorded at 3%, exceeded expectations. However, the Federal Reserve’s preferred measure remains around 2.5% and is projected to decline. While Trump is not directly blamed for current inflation levels, concerns persist over his proposed tariffs and their potential impact on future inflation.

Disclaimer

Please note that Benchmark does not produce investment advice in any form. Our articles are not research reports and are not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

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Photo by Ernie Journeys / Unsplash.