Whether it’s the impeachment proceedings and sharp political divide in Washington, the rapidly spreading coronavirus outbreak centered in China, or other sources of tension, there’s no shortage of uncertainty today dominating headlines on a variety of fronts.
Still, consumers are sending a relatively unambiguous message about their mood: it’s still very upbeat, and increasingly optimistic about the path ahead as well. What are they focused on? As the old adage goes, “It’s the economy, stupid!” It may not be robust, but recession risks have faded, and that fact hasn’t been lost on consumers.
The University of Michigan’s Consumer Sentiment index rose modestly to 99.8 in the final January reading, exceeding the expectation of 99.1. Not only does the index remain well above its long-term average, it’s also still close to its cyclical peak of 101.4. The expansion may be advanced, but consumers clearly still believe it has room to run.
The current state of household finances certainly plays a role. Strong stock and bond market returns in 2019 lifted retirement plan balances, and investors who reviewed their year-end statements in recent weeks had to be pleased. Although consumer debt levels have risen in recent years, low interest rates have kept monthly debt service costs relatively low as a percentage of disposable monthly income. Strong labor market conditions also remain a key support under the consumer sector, with both the unemployment rate and jobless claims still near half-century lows.
Consumer sentiment had faltered last year on fears that the trade war with China, softer global growth, and rising interest rates might choke off the expansion. Last year’s about face by the Fed, progress on the trade front, and stabilization in economic indicators helped to alleviate those concerns. A broad swathe of data still provides a mixed view on the economy, suggesting that some areas of the economy continue to moderate while others are slowly improving.
The bottom line? The economy is still not firing on all cylinders, but it does appear to be well positioned to avoid a near-term recession. For now, it appears that is enough for consumers to stay the course.
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.