Consumer confidence in February reached its highest level since July 2001. The index rose to 114.8, against an expected reading of 111.0. The upside was driven by changes on both the expectations and present situation assessments. Expectations rose to 102.4, while the assessment of the present situation increased to 133.4 (highest since 2007). 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. However, sentiment improvements were more due to those viewing the situation as less bad, than those believing the situation was good. For example, those who found “jobs plentiful” decreased from 27.1% to 26.2%, but there were fewer who found jobs “hard to get.” Those describing business conditions as “good” fell to 28.7%, while those describing it as “bad” fell to 13.2% from 15.9%. With regard to consumers’ expectations, sentiment toward viewing business conditions as “better” was actually higher at 24.0% from 22.9%, and expectations for “more jobs” were also higher at 20.4% from 19.7%. Those anticipating higher incomes were higher at 18.3%, while those who expected a decrease in income fell to 8.2% from 9.4%. The percentage of respondents planning to buy a home was lower at 5.6%. Plans to purchase a new home were a lower at 0.8% from 1.2%.
Confidence continues to move upward following the Trump victory. Interestingly, however, almost all of the increase in consumer confidence has come from the older segments of the population, particularly the over 55s. Confidence amongst the millennials has actually been in decline. Why? Because Trump is promising them higher interest rates, lower estate taxes, lower income taxes, less regulation, lower corporate income taxes, and less foreign competition. Given that older age groups are the ones who have the most savings, own companies, and have inheritance to dispose of, these are all factors that will benefit them. Trump also wants to rekindle the type of jobs America did in its prime, working on factory lines and in coal mines. These are not attractive for millennials, who view themselves working on Google and Facebook campuses and predominantly have little in the way of savings, have no wealth yet to pass down, don’t own businesses, and want to borrow money. In short, some consumers do not feel as though the kind of reforms President Trump is promising, will be a rising tide that will lift all boats.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.