Consumer confidence once again edged higher in November, climbing to 73.7 and moderately exceeding the expectation of 73.0.
Gradual improvement in the employment market, rising home prices, and solid year-to-date stock returns helped to boost confidence for the third consecutive month.
Despite this improvement in confidence, early signs are that the kickoff to the holiday shopping season was a modest disappointment. November retail sales data won’t be formally released until mid-December, but various surveys suggest that increased traffic didn’t translate to stronger sales compared to last year.
As the holiday shopping season progresses, retailers are still hoping that improving consumer mood could still drive better spending into December, allowing retailers to gain ground over last year’s receipts. There is a risk, however, that if overall spending disappoints, retailers could sharpen their focus on battling for market share. Slow sales growth coupled with increased competition could ultimately weigh on profits. The next few weeks will be critical.
The bottom line is that improving consumer confidence is usually a precursor to greater spending and is ultimately a positive for the economy. However, low wage growth will at some point make it difficult for consumers to continue to increase their spending pace.
The greater near-term risk, however, is the looming fiscal cliff, particularly the expected increase in payroll taxes for workers. The impact of that increase appears likely to be seen in paychecks in January. While some households may dip further into savings to absorb that decline in take home pay, it will also undoubtedly weigh on spending in the new year.