Consumer confidence rises remains battered
The Consumer Confidence Index is a key measure of optimism on the state of the U.S. economy. It is released each month by The Conference Board, a U.S.-based global provider of economic data and analytics. The index has a benchmark of 100. Any reading above 100 indicates an optimism on the economy, jobs and income by consumers, who ultimately will spend money and stimulate economic growth. Consumer spending is the key driver of the U.S. economy, accounting for two-thirds of all U.S. economic growth.
The COVID-19 pandemic has had a crushing blow on Americans’ confidence. Government-imposed business closures and lockdowns have forced many Americans to re-evaluate the stability of their employment outlook. In May, the index was reported at 86.6, slightly above April’s level of 85.7. April snapped a 44-month consecutive string of 100-plus readings for the index dating back to July 2016.
The recent index levels lie in sharp contrast to just a few months ago. In January and February, the Consumer Confidence Index was reported at 130.4 and 132.6, respectively. For perspective, in October 2018, the index reached an 18-year high of 137.9. The all-time high, set in May 2000, is 144.7.
At the start of the year, many economists were expecting a 2020 economic growth rate between 3-3.5%, the strongest pace of growth since 2004-05. Fueled by the strongest labor market in 50 years, rising wages and the closure of our tumultuous trade disputes with China, Canada and Mexico, Americans were buoyant in their economic and financial futures. But then the COVID-19 pandemic hit.
At some point, the Consumer Confidence Index will once again rise above the 100-mark that denotes optimism. States have increasingly begun to reopen their economies and once-unemployed workers are gradually returning to their jobs. But the road to recovery is fraught with peril. Just how strong and fast any economic rebound in the second half of the year will be is an unknown factor.
But the greater risk may lie in the psyche of the American consumer. Ideally, consumer optimism fuels the consumer spending that drives our economy forward. In reality, just because consumers are confident doesn’t always mean they will spend their money. It requires a conviction to convert that optimism to sales at America’s check-out lines.
There have been a number of cases where a high Consumer Confidence Index failed to translate to strength in consumer spending. Most recently, from November 2018-February 2019, the index ranged from 121.7-136.4. However, during this time, retail sales data significantly declined and overall consumer spending remained tepid at best.
In the months ahead, we’ll begin to see the extent of any recovery in consumer confidence. As more and more businesses start to reopen, gains in job growth should follow. Unfortunately, a lot of uncertainty still remains. And that hint of doubt might keep an otherwise optimistic consumer from spending their paycheck.
Mark M. Grywacheski, Investment Advisor
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