12.15.2016 Consumer Confidence and Stock Market Are Soaring
Remember before the election when many pundits were saying that if Donald Trump were elected President, the economy and financial markets would go into a tailspin? A little over a month after the election, the exact opposite has occurred.
Consumer Sentiment Index Rises This Month
The latest evidence of the strong bump that Trump’s election has given to the economy and markets (at least so far) came when the University of Michigan’s Consumer Sentiment Index was released on December 9.
The Index rose from 93.8 in November to 98 this month, its highest level since January of 2015. Economists had projected that it would only rise to 94.5, so the Index beat these projections handily. During the first 11 months of this year, the Index averaged a reading of just 91.3.
A record share of survey respondents this month “spontaneously mentioned” that they expect a positive impact from new policies to be implemented by the Trump administration and for the economy and job market to strengthen next year. The gauge of consumer expectations six months out rose from 85.2 to 88.9, its highest level since January of 2015.
In addition, the Current Conditions Index increased this month by 4.8 points to 112.1, its highest level in over a decade. This index measures peoples’ perceptions about their personal finances.
Dow Is Closing in on 20,000
These strong consumer confidence numbers are being recorded at the same time that the stock markets are setting new records on almost a daily basis. The Dow Jones Industrial Average is starting to close in on the 20,000 mark — a level that was unthinkable back when the Dow sank to below 7,000 in the aftermath of the financial crisis.
Of course, Trump hasn’t even been inaugurated yet, so all of this enthusiasm is based on people’s hopeful expectations of what his Presidency might mean for the U.S. economy and investment markets. The director of the Consumer Sentiment Index survey, Richard Curtin, pointed out that Presidential honeymoons typically don’t last very long, petering out in a few months if the new President doesn’t deliver results quickly.
“President-elect Trump must provide early evidence of positive economic growth as well as act to keep positive consumer expectations aligned with performance,” commented Curtain in a statement accompanying the release. “Either too-slow growth or too-high expectations represent barriers to maintaining high levels of consumer confidence.”
High Consumer Confidence = Healthy Consumer Spending
If these high levels of consumer confidence are sustained throughout next year and beyond, this will likely drive up consumer spending, which tends to have a positive ripple effect all throughout the economy. For his part, Curtain is leaving his forecast for consumption growth next year unchanged at 2.5 percent until he sees more specifics about what the new administration’s economic and fiscal policies will be.
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