Back in October 2018, the Conference Board Consumer Confidence Index reached its highest level since September 2000, even in the midst of a stock market slide and fears of inflation and rising interest rates. Another measure of consumer confidence, the Michigan Index of Consumer Sentiment, remained higher in 2018 than in any year this century.
Even though some economists consider consumer confidence to be a lagging economic indicator (due to the fact that consumer attitudes change more slowly than the economy itself), consumer expectations do provide an important indicator of future economic direction. So, let’s take a look at where we’re potentially headed in 2019.
Jobs and Wages. Jobs and wages are perhaps the single most important factor driving consumer confidence. Last fall we measured a 3.7 percent unemployment rate, the lowest we’ve seen since 1969. Wage growth has finally picked up as well, and is growing at an annual rate of 3.1 percent (as measured in October). That’s the highest rate of wage growth that we’ve seen since 2009.
Spending and GDP. With consumer spending accounting for about two-thirds of our gross domestic product (GDP), consumer confidence bodes well for the economy overall (assuming confidence leads to spending).
Confidence reports indicated an increase in the number of consumers planning to purchase major appliances in the next six months, and the number considering a new home purchase held steady.
The long-term impact. Why do we care about consumer confidence? Confidence tends to drive spending, and spending prompts corporations to invest in expansion, hire more employees, and raise wages. Even though these activities can drive inflation, as long as wage increases continue to outpace inflation we can still predict a positive outlook.
We will continue to update you on the progress of the economy as this period of growth continues. For more detailed information on how growth affects you personally, along with your financial portfolio, give us a call. We will discuss your specific needs, and consider any balancing that should be performed to keep your outlook healthy.
