Consumer confidence jumped in November to 107.1, the highest since July 2007, versus an expected reading of 101.5. The change was driven by both the expectations component and the present situation assessment, which rose to 91.7 and 130.3, respectively. The expectations component remains well above the 80 level, which is the lower band of its range in a normal recovery.
The rise in the present situation was due to improved sentiment toward both business and employment conditions. Those who found “jobs plentiful” increased from 25.3% to 26.9%. Those describing business conditions as “good” rose to 29.2% from 26.5%, but those seeing them as “bad” fell from 17.3% to 14.8%. With regard to consumers’ expectations, sentiment toward viewing business conditions as “better” was actually lower at 15.3% from 16.4%, and expectations for “more jobs” were essentially unchanged at 14.5%. The improvement in expectations largely came from consumers expecting things to be less bad in the coming months, i.e., there were fewer consumer expecting business conditions to deteriorate, there to be fewer jobs, and incomes to decrease. Those anticipating higher incomes were again unchanged at 17.5%, while those who expected a decrease in income fell to 9.0% from 10.2%. The percentage of respondents planning to buy a home was higher at 6.5%. Plans to purchase a new home were a little higher at 1.3% from 0.9%.
Confidence rose in November following the victory of Donald Trump as president-elect. However, much of the increase was due to the rise in the present situation assessment and consumers believing that things might be less bad in the future. The share of consumers actually expecting an improvement in the coming six months was generally flat. While there has been a steady improvement in consumers’ assessment of the present situation, expectations have generally been lagging. Consumers essentially seem to have been taking this recovery one day at a time, rather than becoming overly optimistic about the future. While some of today’s increase might be attributed to the Trump victory, confidence and spending had been improving since spending flattened out in July and August. September, for example, showed the largest increase in confidence since October 2007. This rise in confidence also seems to fit with a consumer that is, in aggregate, in relatively decent shape, with a higher saving rate, real incomes rising, and job growth solid. This, coupled with the still low gas prices, has provided a healthy boost to their pocketbooks. Are things perfect? By no means; the volatility in the financial markets has been a concern and the fact that there continues to be weak overall economic growth is as well. Overall, this will be seen as a good sign by the Fed and will only further its intention to raise interest rates in December.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.