Surging Consumer Confidence Beginning to Drive U.S. Economy

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Consumer Confidence Index: What Does It Mean?

With growth forecast at modest levels, the U.S. isn't expected to match post-WWII historical averages anytime soon. Credit: Bureau of Economic Analysis

With growth forecast at modest levels, the U.S. isn’t expected to match post-WWII historical averages anytime soon. Credit: Bureau of Economic Analysis

Given its proportion of leading-edge questions, the index itself tends to be forward-looking. Therefore, the higher the figure, the better the outlook for the U.S. economy.

As an example, the index rose steadily between the end of the 2000-01 recession and 2006, increasing from about 60 to just over 110 during the period.

During the two years just before the crash, the index fell both precipitously and historically, dropping over 70 points.

Meanwhile, the U.S. economy grew an average of almost 3% during that entire period, significantly higher than today’s tepid sub-2% rate.

Growth during a period of dramatically declining consumer confidence indicates the index is future-leaning and not tied to current economic performance, at least in the short term.

As important as the actual number is, the trend line is particularly noteworthy. As of today, the index was 80.3, down from June’s 82.1 figure but well above the 65.4 level posted one year ago. A year before that, it stood at a tepid 51.0. Although not strong by historical standards (mirroring the economic recovery in general), the trend line is significant enough to portend likely future accelerated growth in consumer spending, as individuals are more optimistic than they have been in over five years.

U.S. Economic Growth: The Future

As just stated, this has been the weakest economic recovery on record, with growth hovering near the 2% level since 2010. Structural problems within the U.S. economy, coupled with intransigent politics, have put a damper on the posted results. The long-term results have been trending downward since 2000. Not coincidentally, so has consumer confidence.

As for the future, if consumer confidence can be believed, the near-term appears brighter than during the previous three years. The previous strong economic periods of 1983-89, 1993-1999 and 2003-07 all began with consumer confidence near the level that it stands at today. The difference is that the figure did not drop significantly below 50 in the preceding recessions, versus plummeting below 30 during this past downturn.

The ability to rise much further than it already has may be in doubt, especially considering the impacts of the burgeoning national debt and a bitterly divided government.

For now, pull out the credit card and take that long-overdue trip to the mall. Uncle Sam needs you and a couple hundred million of your closest friends to start spending again.

Resources

Brainy Quote. Rene Descartes quotes(2013). Accessed on July 31, 2013.

Perry, Mark J. America’s ridiculously large $15 trillion economy. (2013). AEI Ideas. Accessed on July 31, 2013.

Trading Economics. United States Consumer Confidence. (2013). Accessed on July 31, 2013.

The Conference Board. Consumer Confidence Survey Technical Note. February 2011 (2011). Accessed on July 31, 2013.

Associated Press. U.S. consumer confidence dips from 5-year high(2013). CBS Money Watch. Accessed on July 31, 2013.

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