Broker Check

Consumer Confidence

September 21, 2018

The US Conference Board announced that consumer confidence reached a cyclical high in August of 133.4. This is the highest reading since October 2000 following the boom years of the late 1990s. This is a strong sign that consumers are optimistic and may be willing to continue to spend, even if they must borrow to do so.

However, it should be noted that consumer confidence is often a lagging economic indicator. In the past consumer confidence has been more a reflection of economic growth and stock market returns in the past 12 months rather than an indicator of what is to come. In fact, consumer confidence is often used as a contrarian indicator in that it often peaks during the beginning of a recession and bottoms near the beginning of an economic recovery. Some argue a high level of consumer confidence may be a sign that things are as good as they can get and therefore economic growth may be likely to slow in the future.

Yet, consumer confidence is still well below its cyclical peak from the early 2000s and the late 1960s. Therefore, it is possible for consumer confidence to continue to increase should the economy and the financial markets continue to report growth.

Given that consumer spending represents approximately two-thirds of US economic output, economists and financial analysts will continue to monitor the attitudes of consumers closely for any signs that consumer spending may decline in the future. In addition, debt statistics are also important indicators of consumer spending as many households rely on debt to continue to increase their spending. Consumer borrowing increased by $16.6 million in July, a 5.1% increase over the prior 12 months, a sign that high consumer confidence is fueling increased borrowing and spending.