Good Tidings - September 4, 2018

A strong economy, a low unemployment rate, a low level of layoffs, and a strong stock market all played at least some role in pushing consumer confidence to its highest reading since late 2000.

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The Conference Board reported last week that the Consumer Confidence Index rose to 133.4 in August, up from July’s reading of 127.7. Improvement was noted in both the current index and future expectations for the economy.

“Overall, these historically high confidence levels should continue to support healthy consumer spending in the near-term,” said Lynn Franco, Director of Economic Indicators at The Conference Board.

She is probably right. When consumers are feeling good about their economic situation and their personal finances, they are more likely to purchase those ‘nice-to-have’ items or take on larger projects at home.

Consumer spending accounts for nearly 70% of total U.S. spending (U.S. BEA). An unexpected slowdown in consumer spending would likely weigh on economic growth.

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Adding to the upbeat mood, the Fed isn’t in a hurry to lift interest rates at a more aggressive pace, something Fed Chief Jerome Powell said two weeks ago.

The Fed’s stance has aided stocks, which saw new highs in key indexes last week (MarketWatch, various sources), and low rates remain supportive of economic growth.

In addition, the graphic above illustrates that consumer confidence turned lower prior to the onset of the last three recessions. With confidence at a new high for the cycle, this leading economic indicator also suggests odds of a 2018 recession remain low.