Consumer Confidence Gains Momentum
Americans are apparently tired of living in a bubble and eager to break out of the winter/pandemic doldrums, if The Conference Board’s Consumer Confidence Index is any indication.
The Index improved again in February, marking the second consecutive monthly increase. The Index now stands at 91.3, up from a revised 88.9 in January. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—climbed from 85.5 to 92.0. However, the Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell marginally, from 91.2 last month to 90.8 in February.
“After three months of consecutive declines in the Present Situation Index, consumers’ assessment of current conditions improved in February,” said Lynn Franco, Senior Director of Economic Indicators with The Conference Board. “This course reversal suggests economic growth has not slowed further. While the Expectations Index fell marginally in February, consumers remain cautiously optimistic, on the whole, about the outlook for the coming months. Notably, vacation intentions—particularly, plans to travel outside the U.S. and via air—saw an uptick this month, and are poised to improve further as vaccination efforts expand.”
Tim Quinlan, Senior Economist with Wells Fargo Securities, Charlotte, N.C., said with vaccines turning the tide on the pandemic and more fiscal relief on the way, February could mark the beginning of a bigger rebound in consumer confidence—with a couple of caveats.
“As has been the case throughout this pandemic, the consumer mindset is largely influenced by the latest developments with the virus itself,” Quinlan said. “Consumer confidence has only hit triple digits during two months of the post-pandemic era: September and October. That coincides with the period when new cases fell below 60,000, and we appeared to be making progress against the spread. Then, colder weather pushed people indoors and fresh cases soared to record highs, which shook confidence in the months since. Now with vaccinations under way and case counts falling once again, confidence is rebounding.”
Quinlan said it would not be surprising to see a triple-digit reading again soon as warmer weather and the vaccine combine forces to return a degree of normalcy to consumer activity.
“The U.S. consumer is poised to emerge from this recession with the biggest surge in spending the world’s largest economy has seen in at least 70 years,” Quinlan said. “We have already seen some improvement in the hard data like January’s retail sales figures which came in well-above the consensus expectation. Between the pent-up demand on the consumer side and the building momentum for a “go-big” stimulus package, we have revised our forecast higher and now look for double-digit percentage growth in consumer spending in the second and third quarters of this year.”
The report said consumers’ assessment of current conditions improved in February. The percentage of consumers claiming business conditions are “good” increased from 15.8 percent to 16.5 percent, while the proportion claiming business conditions are “bad” fell from 42.4 percent to 39.9 percent. Consumers’ assessment of the labor market also improved. The percentage of consumers saying jobs are “plentiful” increased from 20.0 percent to 21.9 percent, while those claiming jobs are “hard to get” declined from 22.5 percent to 21.2 percent.
Consumers, however, were marginally less optimistic about the short-term outlook in February. The percentage of consumers expecting business conditions will improve over the next six months fell from 34.1 percent to 31.0 percent; however, the proportion expecting business conditions will worsen also declined, from 19.0 percent to 17.7 percent. Likewise, consumers’ outlook regarding the job market was somewhat mixed. The proportion expecting more jobs in the months ahead decreased from 30.4 percent to 26.1 percent; however, those anticipating fewer jobs also declined, from 22.1 percent to 20.6 percent. Regarding short-term income prospects, 15.2 percent of consumers expect their incomes to increase in the next six months, down slightly from 15.8 percent in January. Conversely, 13.2 percent expect their incomes to decrease, down from 15.5 percent last month.
Quinlan cautioned consumer spending will need to be maintained by what consumers are actually earning rather than another round of stimulus checks. “We are still a long way from a full rebound in the jobs market,” he said. While a full recovery for overall GDP will likely be realized as soon as the second quarter of this year, it will take years before overall payrolls return to their pre-pandemic peak…and longer still before we have something resembling a balanced fiscal budget.”