Consumer optimism continues to build, as the University of Michigan Consumer Survey increased again in November to 84.9.
Consumer sentiment surpassed expectations, posting its fourth consecutive monthly increase. The recent resurgence in consumer mood is a positive sign, and should bode well for spending in the months ahead. Nonetheless, even with the recent advance, the index remains below its historical average, suggesting that households are still feeling the weight of the impact of last recession and the uncertain outlook for the economy.
Recent gains in the jobs market, solid stock market returns, lower gas prices, and a growing sense that the U.S. housing market may finally be finding its footing are all positive developments. These appear to be trumping the still high jobless rate and poor income growth in the minds of consumers, at least for now.
Expectations are for a moderate increase in spending for the 2012 holiday season. Two significant wildcards exist that could challenge that view. First, it’s unclear what the full impact of Hurricane Sandy may be, given the widespread damage and large number of individuals and businesses impacted in the affected region. Secondly, with the election now behind us, the country is refocusing on the need for policymakers to hammer out a deal to avoid the full impact of federal spending cuts and tax hikes set to take effect in January. The degree to which these issues may cause sentiment to falter remains to be seen.
Unlike consumers, corporate America has adopted a more cautious outlook. Businesses have already begun trimming spending in anticipation of a potential slowdown in the economy should Washington fail to avert the impact of the fiscal cliff. The potential exists for consumer sentiment to slip in the months ahead if a deal isn’t reached or if any agreement still calls for some degree of spending cuts or tax hikes that are sufficient to weigh on an economy that is already growing slowly. In the immediate aftermath of Tuesday’s election, there are some signs of a renewed commitment on the part of Republicans and Democrats to try to find a deal. If that conciliatory mood can be maintained, the chances of a deal being reached seems good, although it’s still too early to speculate on what form it might take.