Consumers certainly were not spooked in October. Overall consumer confidence jumped 5.3 points to 125.9, which marks the highest level for consumer confidence since December 2000. Gains were broad based.
A Spooky Good Number
Consumer confidence has been on a tear for much of the past year, having taken off immediately after the presidential election and building on those gains throughout the year. The overall index rose 5.3 points in October, with the present situation index climbing 4.2 points to 151.1 and the expectations series jumping 6.1 points to 109.1. Given the timing of the acceleration in consumer confidence, and the coincident upswing in the stock market, the improvement in consumer confidence has been viewed somewhat skeptically, as has the improvement in many other soft economic indicators. The hard data has vindicated the improvement in the soft data, with real GDP climbing at a 3 percent plus pace for the past two quarters and the unemployment rate tumbling to just 4.2 percent. With confidence up further in October, consumers see little to fear in the immediate economic horizon.
While consumer confidence is now at its highest level since December 2000, the run-up in consumer confidence looks more reminiscent of the 1997 period, when consumer confidence surged out ahead of what had been an unusually slow economic recovery and eventually became the longest and one of the strongest expansions on record.
The Consumer Confidence Index measures the breadth of consumer confidence rather than its magnitude. The 24.9-percent rise over the past year means more consumers are feeling optimistic about the economic environment than one year ago. Over this period, consumers’ assessment of the present situation index has risen 22.7 percent, while their expectations for economic conditions over the next six months has risen 26.9 percent. The improvement in consumer confidence suggests that the improvement in the economy is broadening and reaching more regions and households.
Most of the improvement in consumer confidence has come from consumers’ views on the labor market. The proportion of consumers that believe that jobs are plentiful has surged 43.5 percent over the past year, while the proportion that believe jobs are hard to get has fallen 19.4 percent. The proportion expecting more jobs to be created over the next six months has surged 35.4 percent, while the proportion expecting fewer jobs to be created has tumbled 28.9 percent. Consumers’ improved perceptions about the labor market suggest that the run-up in the stock market is playing only a supporting role in boosting consumer confidence. After all, far more consumers have a job than own shares of stock.
Higher stock prices are likely boosting confidence among higher-earning households, a larger proportion of which tend to own stocks. Confidence among the lowest income households has fallen, however, likely reflecting sluggish wage and salary growth.
