The average U.S. consumer feels quite strongly about the overall economy and his/her well-being due to increasing employment, higher wages, and higher after-tax disposable incomes and disregards the ensuing hysteria related to potential Fed interest rate hikes and stock market volatility.
Last month, the U.S. consumer sentiment index (MCSI) reached its second highest level since 2004, according to a recent University of Michigan survey. Homeowners’ eagerness to sell their homes was the highest in the decade. The survey's index hopes to capture the average American's mood regarding their economic well-being and outlook. Most of the survey's estimates were surpassed, which seemed to contradict the swings in the stock market. Based upon the survey data, few consumers mentioned the stock market, and those citing it as favorable were roughly on par with those who said it was not. The recent stock market volatility seems to not have affected the general public's sentiments as much as others might suggest.
Since consumer spending makes up more than 70% of U.S. Gross Domestic Product (GDP), the MCSI index serves as a very good indicator of consumer sentiment. Positive consumer sentiment is likely the result of the many positive economic trends, such as the recent jobs report, low unemployment, and tax plan, which led to the $30 billion one-time bonuses across multiple corporations and higher after-tax incomes across the board. Consumer opinions on the Republican Tax Plan were split, with Republicans feeling very positively and Democrats seeing it as unfavorable.
The MCSI report said the largest share of households since 1998 saw improving finances over the past year. Household disposable incomes are expected to continue increasing in the coming years which may add to increasing consumer spending measurements. In addition, the most consumers since 1984 said they had heard positive news about economic developments, with two-thirds citing changes in tax policies and rising employment. Consumer optimism stems from favorable outlooks on employment, wages, and after-tax incomes – these three factors have all seen extremely positive news during the past few months. Other factors such as interest rate hikes and stock market volatility appear to have had little effect on the general U.S. consumer consensus.