Consumer confidence in March was substantially above February’s reading and is now the highest since December 2000. The index rose to 125.6, against an expected reading of 114.0. The upside was driven by changes on both the expectations and present situation assessments. Expectations rose to 113.8, while the assessment of the present situation increased to 143.1. 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 business and employment conditions. Those believing business conditions were good rose to 32.2% from 28.3%, and those who found “jobs plentiful” increased to 31.7% against 26.9% in February. With regard to consumers’ expectations, sentiment toward viewing business conditions as “better” was higher at 27.1% from 23.9%, and expectations for “more jobs” were also higher at 24.8% from 20.9%. Those anticipating higher incomes were higher at 21.5%, while those who expected a decrease in income fell to 7.0% from 8.1%. The percentage of respondents planning to buy a home was lower at 6.0%. Plans to purchase a new home were also lower at 0.9% from 1.2%.
This was another of the strong “soft” data reports against which we are waiting for the “hard” data, in terms of actual spending to follow through. Confidence has historically been a good indicator of future consumer spending. However, up to now, it has largely been the older segments of the population (the 55 & older) who have been driving the surge in confidence. Today’s report shows that the younger cohort (the millennials) are finally becoming a little more confident about their situation. The 55 and older account for 38.3% of total aggregate expenditure, the millennials for 19% of total expenditure. Furthermore, if we look at confidence by income cohort, it has been the lower-middle-income households who have felt the best (and who account for roughly 14% of total consumer spending). While those with the lowest incomes (8.7% of spending) and those very highest incomes (39.6% of spending), where post-election confidence—up to now—has been the weakest. There has been a substantial increase in the highest income group, although the very lowest (who would potentially suffer from cuts to government aide) are still below pre-election levels. On the whole, this was very encouraging as it shows a broader mix of post-election optimism among consumers, where previously it had only been a few driving the bus. As far as the Fed is concerned, this continues to argue for continued slow, but steady rate hikes.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.