The University of Michigan’s Consumer Sentiment index slipped fractionally to 98.3 in the preliminary November reading, modestly exceeding expectations. The index remains well above its long-term average and clearly illustrates a sustained optimism on the part of consumers.
Broadly, consumers have a very optimistic view on the current state of the economy, as has been the case for some time. Also consistent are the less rosy – but still positive – expectations for the future.
Very little has changed in recent months that would be a catalyst for consumers to reassess their views. Economic growth remains quite solid, job creation remains strong, and layoffs are near half-century lows. Wage growth is also picking up, providing additional support for households that have lived with lackluster income growth for much of the past decade.
Still, consumers are wary about the prospects for rising inflation and interest rates that are dampening the spending power of those wage gains. The headwind of rising rates and prices has hit the housing sector particularly hard in recent months despite consumer optimism and strong household spending on goods and services.
Uncertainty related to geopolitics, rising interest rates, trade disputes, equity market volatility, and the contentious environment in Washington are risks, but consumers appear to be taking those in stride.
The positive outlook coupled with stronger wage gains should support further growth in household spending -- a key pillar supporting continued economic growth. Near-term, it should also serve as a positive indicator for retailers as they head into the critical holiday shopping season.
By most measures, the economy remains on a solid footing. The importance of the consumer sector cannot be overstated, and the strength and resiliency of the consumer mood remains a very positive sign.
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