Consumer Confidence Strengthens Further in March

The Strength in Consumer Confidence Is Hard to Dismiss

Consumer confidence once again significantly topped expectations. The overall index surged 9.5 points in March and data for February were also revised 1.3 points higher. The surge in the Consumer Confidence Index reported since the election is hard to dismiss as merely a post-election bounce. Overall consumer confidence has risen 24.8 points since October and coincides with improvement in other consumer surveys, as well as surveys of manufacturers, small businesses, homebuilders and corporate CFOs. Moreover, the gains in consumer confidence far exceed what occurred in previous elections and reflect a much more encouraging appraisal of both current and future economic conditions. The cutoff date for the preliminary survey was March 16, which preceded the demise of the proposed revision of the Affordable Care Act and ensuing stock market pullback surrounding it. We would expect to see some pullback in coming months, particularly if expectations for tax cuts are scaled back. 

More Than Animal Spirits

The improvement in consumer sentiment likely reflects a legitimate improvement in business conditions. Consumers’ assessment of current economic conditions rose 8.7 points to 143.1, largely on the strength of a surge in the proportion of consumrs stating that they believe that jobs are plentiful and a coinciding drop in the proportion stating jobs are not so plentiful. The proportion of consumers reporting that jobs were hard to get also fell further in March and is now at its lowest level of this cycle. The improvementomes on the heels of two strong employment reports and additional strengthening in the number of job openings in the JOLTS survey, as well as a rise in the number of voluntary quits.

The strong improvement in the labor market indicators is exactly what the Fed said they need to see in order to continue to nudge interest rates back to normal. The strength in the labor market may be needed to offset any concerns raised by what looks like will be another disappointing first quarter real GDP report. We are looking for just 1.1 percent growth in the first quarter, largely due to milder winter weather, which reduced heating use and a wider trade deficit tied to the early Lunar New Year.

Expectations for future economic conditions jumped 9.9 points to 113.8. The largest improvement came in the proportion of consumers expecting more jobs to be created over the next six months. A growing proportion of consumerslso expect their income to rise over the next six months while fewer expected a decrease. Consumers’ improved assessment of their income prospects is evident in purchasing plans for automobiles and major appliances, which both rose solidly in March. Plans to purchase a home also remain at a fairly high level but gave back part of the prior months gain.