The University of Michigan Consumer Sentiment Index came in at 88.8 for November, a moderate increase from the October result of 86.9. The final estimate reflected a reduction from the preliminary reading of 89.4 for the month.
Consumer confidence remains on a gradual uptrend. Gasoline prices are down, putting extra discretionary spending money in their pockets, while investment markets are higher year-to-date, raising portfolio values.
The jobs market also remains on a healthy path – a clear positive for the collective consumer mood. Job creation remains solid, and while there is still significant room for improvement in overall conditions, progress is clearly being made. Jobless claims spiked last week, but the data often becomes more volatile around holidays as the effect of seasonal adjustments can be distortive.
Household balance sheets also look relatively well-positioned. Debt service as a percentage of income remains low compared to historical standards, suggesting that consumers have some latitude to take on additional debt, particularly with interest rates still quite low. Increasingly confident consumers may be more inclined to dip into savings or tap credit, which could provide a nice tailwind for retail sales for the holiday shopping season.
Despite their rosier mood overall, consumers remain justifiably skeptical about prospects for future wage gains. Although we’ve seen modest improvement on this front, more robust wage gains could spur further confidence, ostensibly leading to further spending. That in turn should produce more jobs, reducing unemployment and providing a catalyst for stronger wage growth – all components of a “virtuous cycle” that could help push the US further toward a self-sustaining expansion, ultimately allowing the Fed to normalize monetary policy.
In the absence of stronger inflation, and with slack remaining in labor markets, the Fed appears poised to maintain their easy policy stance in the near-term. The Fed still appears to be looking toward mid-2015 as a likely timeframe to start raising rates, although many investors remain somewhat skeptical of that timeframe. Regardless, rates are low for now, making the cost of borrowing relatively attractive for those with the confidence and capacity to do so.