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Does the Fall in US Consumer Confidence Signal Bigger Concerns?

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Dec. 28 2018, Updated 8:26 a.m. ET

US consumer confidence

The US consumer confidence index recorded its biggest fall in more than three years in December. This measure of consumer confidence in the economy was released yesterday by the Conference Board. The index fell 8.3 points to 128.1 in December, posting the biggest one-month fall since July 2015.

After remaining resilient throughout 2018, consumers are likely getting worried about a potential economic slowdown in the United States in 2019. The volatility in the financial markets might have also contributed to the decline in consumer confidence.

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Leading indicators

As we highlighted in Are Indicators Signaling a Downturn in US Economic Growth? some leading indicators have started to signal weakness in the US economy (VOO) going forward. Residential investments (ITB) slowed for a third straight quarter, and while US housing starts rose in October, the underlying trend has been weak. Business investment, another important leading indicator, is also slowing down. In the third quarter, business spending fell to just 0.8%, its slowest pace since late 2016.

Headwinds facing the US economy

Many headwinds, including monetary policy tightening and trade tensions with China (FXI)are facing the US economy. These factors are expected to weigh significantly on the country’s economic growth in 2019. Consumer spending forms two-thirds of the US economy (SPY) (DIA), so a fall in confidence among consumers could be a cause for worry. However, more data will have to support this view before any trend can be established.

Because investors are worried about the economy’s future, defensive sectors such as utilities (XLU) and precious metals (GLD) could attract bids.

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