Monday Update: Consumer Confidence Soars to 17-Year High

Posted by Brad McMillan, CFA, CAIA, MAI

This entry was posted on Dec 4, 2017 12:31:01 PM

and tagged In the News

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Monday updateLast week gave us a detailed look at both how consumers are feeling and what they are doing, as well as the sentiment levels of manufacturing companies. Overall, the news was quite good. It matched or beat expectations across the board—suggesting that the recovery continues and may well accelerate.

Last week’s news

On Tuesday, the Conference Board consumer confidence survey was released, which surprised to the upside. It rose from a 16-year high of 125.9 in October to a 17-year high of 129.5 in November. Strong job markets and stock markets pushed the index higher, with most of the gain coming in expectations for the future. This unexpected rise pushes confidence to even more of an unusually high level, which is consistent with faster growth.

The personal income and spending reports came in on Thursday. They showed that people are indeed acting in line with how they are feeling. Personal income growth did better than expected, staying at a strong 0.4 percent in October after a strong 0.4 percent in September. As expected, personal spending growth pulled back from gains of 0.9 percent in September—boosted by sales of vehicles to replace those destroyed in the hurricanes and rising gas prices—to a more normal but still healthy gain of 0.3 percent for October. This is a positive result for consumers, who represent the largest proportion of the economy.

On Friday, the Institute for Supply Management’s (ISM’s) survey of manufacturing businesses, the ISM Manufacturing index, was released. It pulled back slightly, from October’s seven-year high of 58.7 to 58.2. This is a diffusion index, where numbers above 50 indicate expansion while those below indicate contraction. So, even with a small pullback, this index still suggests business confidence and likely continued growth.

Overall, last week's data remains very positive, with the rise in confidence particularly encouraging. The recovery continues.

What to look forward to

This will be a busy week for economic news. On Tuesday, the international trade report is expected to show that the trade deficit has worsened, moving from $43.5 billion to $46 billion. Imports continue to rise, so any decline would be due mostly to a drop in food exports. This may be the result of an adjustment problem related to last year’s pop in soybean exports. If so, it would be reversed later.

Also on Tuesday, the ISM’s Nonmanufacturing index will be released. Expectations for this survey of the service sector are for a small decline, from 60.1 to 59. This decline would come from the unwinding of the statistical effects from the hurricanes, which distorted results in the previous months, rather than actual slowing. This is a diffusion index, and any number above 50 indicates expansion. So, even with a decline, this index remains a strong indicator of growth.

On Friday, the employment report is expected to show growth. Experts are projecting 200,000 job gains, with the unemployment rate holding steady at 4.1 percent. The workweek also is expected to hold steady, with pay growth remaining at 0.3 percent. These are all strong numbers, and if the wage growth number comes in as expected, it would take the annual growth rate to 2.7 percent, close to a high for the recovery.

Finally, and also on Friday, the University of Michigan consumer confidence survey is expected to rise from 98.5 to 99 on a strong labor market and rising stock market. Given the strong result in the Conference Board’s recent survey, there may be some upside risk here, which is reinforced by the seasonal factors that normally drive up this survey around this time of year. Strong consumer confidence helps drive consumer spending, and this would be a positive result.

Have a great week!

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