Why Are Consumers So Confident?

 Popular Economics Weekly

Conference Board

“Rather than retreating mildly this month as expected, the Conference Board’s consumer confidence index edged up slightly from an upward-revised June level to stand at 129.1,” said Reuters.  That was a new pandemic-era high, although still slightly below the pre-pandemic (February 2020) level of 132.6.”

Why are consumers so optimistic with alarm bells ringing that economic activity may slow due to the pandemic’s latest surge in the Conference Board's latest survey? Because it’s not hurting the jobs market with the 6 million plus job vacancies and employers practically begging their employees to return to work.

The Conference Board’s jobs-plentiful index increased to a 21-year high of 54.9, for starters, and wages and salaries at the bottom end of salaried workers are rising at the fastest clip since the pandemic.

“Consumers’ appraisal of present-day conditions held steady, suggesting economic growth in Q3 is off to a strong start,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ optimism about the short-term outlook didn’t waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve.”

Consumers have been spending like there’s no tomorrow since January, as I’ve said. The question remains just how long can that continue with the coronavirus Delta variant causing infection rates to soar among the unvaccinated, but rising prices aren’t fazing consumers with so much disposable income at their disposal to spend.

“Short-term inflation expectations eased slightly but remained elevated.,” continued Franco. “Spending intentions picked up in July, with a larger percentage of consumers saying they planned to purchase homes, automobiles, and major appliances in the coming months. Thus, consumer spending should continue to support robust economic growth in the second half of 2021.”

The IMF among other authorities believes worldwide GDP will expand 6 percent this year. That is huge, up from 2-3 percent in recent years.

Households are still buying plenty of goods, but they have shifted their spending toward services they avoided during the pandemic, “dining out, entertainment, travel, vacation trips and so forth,” reported MarketWatch in last week’s retail sales report.

And this is where any future super-spreader events will occur. It is why the US Surgeon General is saying masks should again be worn in crowded indoor locations with poor ventilation—such as bars and restaurants. This may certainly cause consumers to take notice, but not yet per consumer confidence surveys.

COVIDTracker

Take bars and restaurants, the only category in the monthly retail report that involves services. Retail sales jumped 2.3 percent in June, the government said Friday, and rose sharply for the fourth month in a row. And through the first six months of 2021 receipts are up almost 38 percent.

We know consumers also would have bought more new cars and trucks last month, but automakers cannot produce enough of them because of a shortage of computer chips. Semiconductors are now a critical component in modern vehicles.

There is still a reluctance for some workers to return to work. I reported last week that the job-listing site Indeed did a 5,000 person survey that gave an additional reason why workers are reluctant to return to work.

“Among the unemployed, concern about COVID-19 is the most commonly cited reason for a lack of urgency in looking for work,” wrote Nick Bunker, the economic research director for North America at the Indeed Hiring Lab, in a blog post on the survey results. Some 23% of unemployed people said fear of the virus was keeping their job search “non-urgent.”

This doesn’t seem to have dimmed consumer confidence or spending habits now. But the current 7-day moving average of daily new cases (40,246) increased 46.7% compared with the previous 7-day moving average (27,443), says the CDC (see graph). The current 7-day moving average is 84.2% lower than the peak observed on January 10, 2021 (254,052) and is 250.6% higher than the lowest value observed on June 19, 2021 not(11,480).

Although pundits some economists are concerned about the Delta variant and rising prices, it has not dented consumers’ confidence in their future.

Harlan Green © 2021

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