Consumer confidence is an economic indicator that assesses the consumer’s level of optimism towards the state of the economy and their personal financial situation. A good amount of confidence ensures that the consumer will spend more in the immediate and near future than save. In the United States, where consumer spending accounts for 70% of economic activities, the Consumer Confidence Index (CCI) is one of the objective measures devised to calculate the consumer confidence. The latest figure, published in August 2018, shows that the CCI has grown to 133.4 – an 18-year high. The number confirms the rise in confidence among American consumers, despite the Trump administrations ongoing trade war against major economic allies.
Incepted in 1967, the CGI has always been maintained by the New York-based Conference Board. At the turn of the century, in 2000, the CCI soared at a value of 135.8. Since then, the economic collapse of 2000 and 2008 resulted in its downfall. Under the Obama administration, the CCI rose for the entirety of his 8-year term. The trend followed well into the current Trump administration and reached the historic number in August 2018. It captured the sentiment of the average American consumer – an improvement in the assessment of current conditions and rejuvenated expectations about the future. In fact, many consumers have stated that they planned on making big-ticket purchases, like buying houses and cars, in the months ahead. They are little worried about the protectionist trade policy of Donald Trump, which has escalated trade wars between the U.S. and China and resulted in tit-for-tat tariffs with the European Union, Mexico, and Canada.
Despite a few layoffs by steel and aluminum-related companies, the labor market has shown significant improvement during 2018. The labor market differential, which is the difference between the percentage of respondents who say jobs “are plentiful” and percentage of respondents who say jobs “are hard to get”, is closely correlated to the unemployment rate in the Labor Department’s employment report. The labor market differential rose from 28.0 in July to 30.0 in August, signifying the downwards trend in the employment rate in the country.
Meanwhile, with 1.06% contributed from trade, the Gross Domestic Production (GDP) grew at 4.1% in the April-June quarter, the best since 2014. Since then, exports of agricultural products and shipments of food and beverages have tumbled, resulting in a 1.7% drop in the net exports of goods. This resulted in the goods trade deficit to expand by 6.3% to $72.2 billion in July 2018. Many economists have cited such numbers in their prediction that the GDP would slow down to 3% in the Jul-Sep quarter, in which case, would still be above the 2.2% GDP growth rate in the first quarter of 2018.
In contrast, the University of Michigan Consumer Sentiment Index (MCSI) has reported an 11-month low in consumer sentiments. Their result indicates that consumers are, indeed, worried about the repercussions of trade wars – a rise in inflation that could erode their purchasing power. Meanwhile, based on the modest rise in the expectation index, analysts at Capital Economics have also predicted that growth rate might slow down in the near future.
Meanwhile, Donald Trump hasn’t shied away from taking credit for this historic number – which has resulted from the trends observed during the Obama administration in the first place. The effects of trade-war could be felt in the future, and American consumers should be vary of that fact before indulging in high-end purchases that could result in substantial loans in the future.