The final UMichigan consumer confidence print is in, and it was even higher, printing at 98.5, up from 98.2 in December, and above the 98.1 consensus estimate. This was the highest print since January 2014, or as the survey emphatically notes, “consumers expressed a higher level of confidence January than any other time in the last dozen years.”
The reason for this ongoing surge in US consumer confidence, once again, continues to be Trump:
The post-election surge in confidence was driven by a more optimistic outlook for the economy and job growth during the year ahead as well as more favorable economic prospects over the next five years. Consumers also reported much more positive assessments of their current financial situation due to gains in both incomes and household wealth, and anticipated the most positive outlook for their personal finances in more than a decade.
Consumers also naively believe that the Fed’s rising rates will translate into higher savings rate; it also states that expectations of higher rates are promptly more Americans to borrow:
Consumers have become more convinced that the stronger economy would finally prompt the Fed to increase interest rates at a quicker pace, which caused one-in-five consumers to favor borrowing-in-advance of anticipated increases in mortgage rates, the highest level in more than twenty years.
This can be seen in inflation expectations, which recently hit record low, but have since rebounded from 2.2% in December to 2.6% in the final January print, and from 2.3% to 2.6% for 5 year inflation expectations.
Finally, the survey cautions that “the post-election surge in consumer confidence was based on political promises, and not, as yet, on economic outcomes. Moreover, over the past half century the surveys have never recorded as dominant an impact of partisanship on economic expectations. When the same consumers were re-interviewed from six months ago, the survey recorded extreme swings based on political party affiliation, with Democrats becoming much more pessimistic and Republicans much more optimistic. Such divergences will ultimately converge since consumers hold economic expectations.”
Expect a prompt reversal once reality clashes with Trump’s yuuge promises.
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