The University of Michigan’s Consumer Sentiment index edged down to 99.7 at the end of February, but declined less than anticipated by economists. Even so, that result was the second strongest since 2004, consistent with a very strong consumer outlook. Sentiment surged in the aftermath of the 2016 Presidential election, and has remained elevated since that time, as economic growth, job creation, and U.S. equity markets have been strong.The strength of overall job market conditions and robust stock market returns in the past few years have boosted household financial positions, emboldening consumers. Recent market volatility hasn’t dimmed those spirits, as the recent decline took back only a small portion of those gains.
While the Fed remains focused on inflation and some have recently speculated about the growing risk that the economy could overheat, consumers remain sanguine, with little concern about rising inflation. Should inflation surprise to the upside, consumers will be surprised – a potential risk, but likely one that that still appears unlikely.
One item of note in the report was the divided views on the recently passed tax cuts, support for which seemingly broke down along partisan lines among survey respondents. Even so, the reduction in federal tax withholding is going to provide a boost to discretionary income for many households. And confident consumers with extra cash – regardless of their personal political views – are more likely to spend.
The bottom line is that the current strength of the economy is showing up in tight labor markets, hints of stronger wage growth, solid equity market returns, and a consumer sector that remains very optimistic and is spending accordingly.
Despite the potential for rising interest rates and oft-heated political discourse, the economy remains on a solid footing, with growth expectations still looking very good.
Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.
Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis non-factual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.