According to a Conference Board Survey, uncertainty surrounding the ultimate composition of tax reform weighed on consumer confidence in December. The cutoff date for the survey was December 15, when the bill was very much still in flux.

The Conference Board said the Consumer Confidence Index declined a larger-than-expected 6.5 points in December to 122.1. All of the drop occurred in the expectations component, which likely signals concerns about what the ultimate composition of tax reform was going to look like and how that would impact the economy and household finances.

The cutoff date for the Conference Board’s survey was December 15 and the tax reform package was still very much in flux throughout the forecast period. Moreover, reports on the likely impact of tax reform varied considerably, which led to increased uncertainty and weighed on consumer expectations. The expectations index tumbled 11.9 points during the month to 99.1.

While the drop in expectations is noteworthy, it may not be all that meaningful. Expectations are extremely volatile and have rarely risen much higher than they were in November. Even at their lower December level, expectations for future business conditions remain relatively high. The proportion of consumers that expect better business conditions six months from now (20.2%) is still more than twice as high as the number expecting business conditions to worsen (9.2%). The remaining 70.6% expect business conditions to be roughly the same.

Maintaining strong current business conditions for another six months would not be such a bad thing, given that consumers’ assessment of current business conditions rose 1.7 points to 156.6 in December, marking its highest reading since 2001 and the first time the index has risen to this level since 1997. Nearly three times as many consumers (35.2%) rate present business conditions as good as rate them as bad (12.1%). The proportion of consumers stating that jobs are plentiful is also more than twice as large as those stating that jobs are hard to get. The labor differential, which takes the difference between those two series, fell slightly in December but remains well above its year-ago level and is consistent with solid job growth and continued declines in the unemployment rate.

The labor differential is also a good proxy for job security. When consumers feel more confident about their employment and income prospects, they are more likely to move forward with major purchases. The proportion of consumers stating they plan to purchase a home in the next six months rose 1.1 percentage points in December and is currently at its highest level of this expansion. Plans to purchase an automobile slipped somewhat but remain at a relative higher level. Overall buying plans rose five points in December and are up nearly 10 points over the past two months. The surge in buying plans coincided with the strong holiday season. The bottom line is that consumers remain optimistic going into the New Year, even though the headline consumer confidence figure fell in December.