The tone was a bit more optimistic in March, as the Conference Board Consumer Confidence Index was lifted by improving expectations for the economy. The index rose to 101.3 from an upwardly revised 98.8 in February.
Confidence spiked at the beginning of the year as gas prices plummeted and job creation remained robust. Although the index took a step back in February, the collective consumer mood remains upbeat and measures of sentiment remain on a generally positive path higher.
While the future outlook improved in March, consumers’ views about current economic conditions softened for the second straight month. Outside of the generally good news on the jobs front, the recent softness in some economic data has not been lost on those surveyed. The silver lining here is that it appears that most believe the slowdown to be temporary.
Confidence readings tend to be highly correlated with stock prices, which are floating near all-time highs; the jobs market, where we’ve seen robust gains over the past 18 months; and gasoline prices, which are over $1 per gallon lower than one year ago. That decline should put some additional cash into consumers’ pockets, but thus far has not had a material positive impact on discretionary spending. Consumers are likely to adjust their spending habits should lower prices become entrenched for an extended period. For now, they appear content to pocket the savings.
Confidence remains near post-recessionary highs, and for good reason. Collectively, household balance sheets appear to be relatively stable. Given debt service costs as a percentage of total income, consumers appear to have the ability to tap credit to fuel additional purchases. However, credit availability is more limited than in the heyday of the credit bubble, and the household preference to stash away additional cash in savings remains higher than it was prior to 2008.