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MARK-TO-MARKET: Consumer confidence reaches 12-month high

MARK-TO-MARKET: Consumer confidence reaches 12-month high

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On Tuesday, the Consumer Confidence Index was reported for March. This monthly gauge of consumer sentiment is released by The Conference Board, a U.S.-based global provider of economic data and analytics. For the uninitiated, the index has a benchmark of 100. Any level above 100 indicates an optimism by consumers on their future outlook for the economy, jobs and income.

March’s report of 109.7 represented a new post-pandemic high. It greatly exceeded Wall Street’s forecast of just 96 and was a sizable jump from February’s report of 90.4. Since the initial fallout from the COVID-19 virus 12 months ago, Americans’ confidence has struggled to regain its footing. In April 2020, the index plummeted to 85.7, a six-year low, snapping a string of 44 consecutive months of 100-plus levels. For perspective, the all-time high for the Consumer Confidence Index is 144.7 set in May 2000.

March’s surge in consumer confidence was driven by the continued rollout of the COVID-19 vaccines and their role in reopening the economy. For Wall Street, the index’s relevance is that it tends to serve as a predictor of consumer spending — the key driver of America’s economy. Historically, optimistic consumers tend to spend more. Any increase in consumer demand for goods and services must be accompanied by an increase in production and labor force to meet that demand. For employees, this translates to rising wages and greater disposable income. For companies, economic growth means greater profits.

The latest consumer confidence data also alleviates concerns over February’s disappointing retail sales report. In February, retail sales suddenly fell by 3%, compared to January’s massive gain of 7.6%. Wall Street has viewed this pullback as more of a one-off event caused by February’s arctic blast that hit much of the nation. March’s strong consumer confidence report further strengthens that argument.

Over the past 12 months, consumer confidence among Americans has tracked the general ebb-and-flow of the pandemic. As the economy continues its reopening, confidence should remain high. But confidence can be a very fickle feeling. Ultimately, Americans must convert that optimism to dollars spent at the checkout line. But as history has shown, despite consumers being optimistic, their spending can unexpectedly slip into hibernation.

From November 2018 to February 2019, the Consumer Confidence Index ranged from 121.7 to 136.4, extremely high levels by any account. But during this same time, national retail sales significantly declined and overall consumer spending remained tepid at best.

Currently, Americans remain optimistic in their future outlook, Wall Street fully expects consumers to fuel a very strong pace of economic growth for the rest of the year.

Mark Grywacheski is an expert in financial markets and economic analysis and is an investment adviser with Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment adviser with the U.S. Securities Exchange Commission.

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