The Conference Board's Consumer Confidence Index declined in January to 104.1, down from a revised 109.5 (previously 104.7) in December, and below expectations of 106.3 in the Econoday survey of forecasters. Consumers' assessment of current business and labor market conditions fell sharply, while their short-term outlook for income, business, and labor market conditions also declined, but to a lesser extent.

Consumers' views on the present situation saw the largest drop, the Conference Board said, noting,"views of current labor market conditions fell for the first time since September, while assessments of business conditions weakened for the second month in a row."

"Meanwhile, consumers were also less optimistic about future business conditions and, to a lesser extent, income. The return of pessimism about future employment prospects seen in December was confirmed in January," the report added.

The Conference Board said the share of consumers anticipating a recession over the next 12 months remained stable near the series low.

Average one-year inflation expectations saw a small uptick to 5.3 percent in January from 5.1 percent in December."[R]eferences to inflation and prices continue to dominate write-in responses," the report said.

On a six-month moving average basis, consumers' purchasing plans for homes and cars were"flat" in January. In addition, while more consumers planned to purchase big-ticket items over the next six months, the share was down slightly. Nevertheless,"[c]onsumers' views of their Family's Current Financial Situation were more positive, and six-month expectations for family finances reached a new series high," the Conference Board said.

Consumer confidence is seen recovering to 106.3 in January after fading to 104.7 in December from a recent high of 112.8 in November and 109.6 in October.

The Conference Board's confidence report surveys consumers on their assessments of the labor market, business activity, and their own financial conditions. The survey is conducted by Toluna, an online community platform. (Conference Board and Toluna)

The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.

This balance was achieved through much of the nineties and, in large part because of this, investors in the stock and bond markets enjoyed huge gains. It was during the late nineties that the consumer confidence index hit its historic peak, reaching levels that were never matched during the subsequent 2001 to 2007 expansion nor during the long expansion following the Great Recession.

Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.