Is the US Consumer Situation Improving?

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A couple of weeks ago we got the flash reading of the Michigan Consumer Confidence numbers.

These provided a bump to the markets. Not because they beat expectations so much, but it was the first time that consumer confidence had gone back to pre-pandemic levels.

Expectations remained the same, suggesting that consumers were already prepared for the economy to return to normal by the end of spring. However, it seems that US spenders are getting more confident as the vaccine rollout climbs above the crucial 50% of the population level.

Of course, that’s just the preliminary number. We get the final result on Friday.

So, it might not confirm the initially optimistic flash reading, given developments in the latter half of the month. In the meantime, tomorrow we have the release of the Conference Board Consumer Confidence Index.

This could give us some insight into what we might get on Friday.

Getting ahead of the game

CB Consumer Confidence doesn’t really predict what we’ll get from the University of Michigan survey. This is because it usually tends to be less optimistic.

And that’s why the consensus for tomorrow’s reading is interesting because it suggests that even the less optimistic of the measures are showing a significant boost in confidence.

While that might be an indicator that the result on Friday will outperform, analysts have since upgraded their outlook. Because there have been so many indicators that US consumer confidence is on the rise, it might just be that economists get overly optimistic.

The real-world data might be high, but it could still manage to disappoint.

Expectations are for tomorrow’s CB Consumer Confidence Index to come in at 112.1 compared to 109.7. This would be the best result since February of last year. The flip side of that coin, though, is that as consumers come back to stores, then we might be looking at a higher increase in inflation.

Getting a handle on the market reaction

We would expect increased consumer confidence to push bond yields higher. This, in turn, might depress the stock market (which is already a bit shaky after Biden’s capital gains tax announcement on Friday).

But this might have important implications for other data coming out just a little earlier: the Case-Shiller Home Price Index.

Expectations are for home prices to show an annual increase of 11.8% in April. This would significantly outperform inflation and wage growth. House price sales have been on the rise since September last year, as lower mortgage costs finally filtered through to homebuyers.

The future?

However, there’s still a lack of consumer confidence. There’s also a worry about future inflation that could cause interest rates to rise.

As a result, there’s an increasing number of analysts who are concerned about a future housing market collapse.

Housing prices have not been increasing this fast since late 2013. If interest rates rise, the cost of credit might increase beyond the means of many consumers who are facing a post-pandemic loss of stimulus.

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