Consumer Confidence Reaches Two-Year High
Released each month by The Conference Board, the Consumer Confidence Index (CCI) is a key measure of consumer optimism. The index has a benchmark of 100. Any level above 100 indicates an optimism by consumers on jobs, income and the economy. Below 100 conveys pessimism. Its importance to Wall Street is that optimistic and confident consumers tend to spend their money more freely, which ultimately powers the economy forward. In fact, consumer spending is the main driver of our economy, accounting for roughly 70% of America’s total economic growth.
On Tuesday, the CCI for January was reported at 114.8, slightly above Wall Street’s forecast of 114. It was the third consecutive monthly rise in the index and a significant increase from December’s level of 108. It also marked the highest level in 25 months, dating back to December 2021 (115.2). For perspective, the CCI plummeted to 85.7 in April 2020 in the aftermath of the COVID pandemic. The post-pandemic high is 128.9 set back in June 2021.
There are a number of factors behind the recent spike in consumer confidence. First, the U.S. economy has remained stronger than expected. In the October-December fourth quarter, the economy grew at an annualized rate of 3.3%, well above Wall Street’s forecast of just 2%. This was reflected in The Conference Board’s January survey where 22.5% of consumers viewed business conditions as “good”, up from the 21.1% reported in December. Likewise, just 14.2% of consumers said business conditions were “bad”, down from December’s level of 17.2%.
A resilient labor market has also helped boost consumer confidence. On Friday, the Department of Labor reported the national unemployment rate at 3.7%. Since April 2023, the unemployment rate has gradually ticked-up from a 50-year low of 3.4%. However, a 3.7% unemployment rate still conveys a strong demand by employers for qualified workers. There are currently more than nine million unfilled job openings across the country, 16.3% higher than the February 2020 pre-pandemic level of 7.76 million. In The Conference Board’s survey, 45.5% of consumers said jobs were “plentiful”, a hefty increase from the 40.4% reported in December.
The continued recovery in the stock market has also buoyed consumer optimism. After a punishing 2022, where the benchmark S&P 500 declined by 19.4%, 2023 performed much better. Last year, the S&P 500 gained 24% and recently reached a new all-time high.
Going forward, the path of consumer confidence will likely be heavily dependent on the future strength of the economy. A strong economy fuels higher job growth, rising employee wages and greater financial security in American households – all typical cornerstones of an optimistic consumer.
Whether the economy retains its current strength or not is still of much debate on Wall Street. Lingering chatter of a pending recession this year still persists. But, for now, American consumers are expressing their newfound optimism.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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