The Conference Board’s measure of consumer confidence rose in February to 91.3, rising above last month’s reading of 89.3 and beating consensus expectations.
The driving force behind the upturn has been a more optimistic assessment of the economy’s current state. The sharp slowdown in the pace of the expansion late last year had dimmed the consumer mood, as was readily apparent in unexpectedly soft retail sales numbers in November and December — a troubling sign during the critically important holiday shopping season.
The underlying cause was no mystery, as COVID-19 cases and deaths surged across the country late last year. Restrictions on activity and public gatherings played a role, but consumers also voluntarily adjusted their behavior to reduce their risk of exposure. That hit the leisure and hospitality sector particularly hard, but also rippled into consumer spending for a range of goods.
Positive news on the vaccine front and a sharp decline in daily case counts certainly provided a boost to confidence. The December stimulus package that extended certain targeted jobless benefits provided relief for households still impacted by elevated unemployment. Stimulus checks for most households also provided some extra fuel to jumpstart a surge in January spending.
Despite that growing comfort level with the current state of the economy, consumers remain more skeptical about the outlook for the path ahead. Lingering questions around the timeline for vaccine delivery, its effectiveness in treating new strains of the COVID-19 virus, and the resulting impact on economic conditions remain sources of uncertainty. Shifting priorities under the Biden administration, particularly for fiscal spending and tax policy, also remain at the forefront of any assessment of the economic outlook. Unsurprisingly, the range of views on that outlook breaks heavily along party lines.
The expectation for another significant stimulus package and the potential for a large infrastructure bill later this year both have the potential to provide an additional boost to an economy that appears to have found its footing and is poised to accelerate in the coming months.
Fiscal support may continue to serve as a bridge to the other side, but a more durable reopening of the economy will hinge on continued progress in bringing the COVID-19 pandemic under greater control. To that end, progress is likely to be gradual and subject to revisions to the timeline but is directionally on track. So long as that trend remains steady, the collective mood of consumers should remain on the upswing.
The bottom line? It’s too soon to definitively conclude that the worst is behind us, but mounting evidence suggests that could be the case, with brighter days ahead. Growing confidence and available cash to spend should — and likely will — set the foundation for a solid rebound in consumer spending in the months ahead.
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