Consumer Confidence: Let the Party Continue
|Consumer confidence surged to the highest level in 17 years, at 129.5 in November. Consensus was expecting a slight decline for the month. The Index was upwardly revised in October, from 125.9 to 126.2.
Consumers Enter the Holiday Season Upbeat
According to the Conference Board’s Consumer Confidence Index, American consumers are heading into this year’s holiday season with the highest confidence in 17 years. We have to go back to November of 2000 to see a higher consumer confidence level and this is no small feat. However, what is even better today is that consumer confidence back in November 2000 was actually coming down, while today’s consumer confidence is still climbing. Not only is consumer confidence the highest in 17 years, it is also still improving compared to what was happening in November 2000. The Present Situation Index was higher in November, up to 153.9 from a print of 152.0 in October, while the Expectations Index increased from 109.0 in October to 113.3 in November. According to the Conference Board’s report, one of the biggest drivers of consumers’ expectations was the improvement in the labor market.
Furthermore, both the assessment of business conditions as well as employment conditions improved during the month. Those considering business conditions as “good” improved from 34.4 percent to 34.9 percent, while those indicating business conditions were “bad” declined from 13.5 percent to 12.7 percent. Meanwhile, the assessment of the labor market also continued to improve. Those assessing that jobs were “plentiful” increased from 36.7 percent to 37.1 percent, while those that said jobs were “hard to get” decreased further, from 17.1 percent to 16.9 percent.
Perhaps the biggest issue is not how confident consumers are, but if they are willing to borrow in order to increase holiday purchases this year. Although consumer confidence has improved for several household income segments, it is still not homogeneous. It is clear that those in the upper levels of income have been the most upbeat since late last year, while those in the lower income levels have had their issues with confidence.
Overall, as shown in the bottom graph, while consumer confidence has continued to improve and income expectations have followed through, disposable income growth has remained muted over the last year or so. Thus, consumers will have to continue to bring down the saving rate, as they have done for more than a year, and/or they will have to demand more credit to make this holiday season as merry as what the consumer confidence index has been indicating. Since, as we pointed out above, we are still in the upswing phase of consumer confidence, the probability that consumers will act on this higher confidence is high today.
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