Consumers’ assessment of current conditions declined in December. Those saying business conditions are “good” decreased slightly from 29.7 percent to 29.2 percent, while those saying business conditions are “bad” increased from 15.2 percent to 17.3 percent. Consumers’ appraisal of the labor market was less positive than last month. Those stating jobs are “plentiful” declined from 27.8 percent to 26.9 percent, while those claiming jobs are “hard to get” increased from 21.2 percent to 22.5 percent.
Consumers’ short-term outlook improved considerably in December. Those expecting business conditions to improve over the next six months increased from 16.4 percent to 23.6 percent, while those expecting business conditions to worsen declined from 9.
9 percent to 8.7 percent.
Consumers’ outlook for the labor market also improved markedly. The proportion expecting more jobs in the months ahead increased from 16.1 to 21.0 percent. However, those anticipating fewer jobs also increased, from 13.5 percent to 14.0 percent. The percentage of consumers expecting their incomes to increase rose from 17.4 percent to 21.0 percent, while the proportion expecting a decrease fell moderately, from 9.2 percent to 8.6 percent.
The following chart and commentary is from the National Federation of Independent Business:
The Index of Small Business Optimism rose 3.5 points to 98.4, a substantial gain to just above the 42-year average of 98. Eight of the 10 Index components posted a gain, one declined and one was unchanged. Expectations for real sales gains and outlook for business conditions accounted for 69 percent of the gain. The two employment components added 20 percent of the gain. The remaining six components were little changed.
Analysis: For the consumer, this will probably lead to increased retail sales and personal consumption expenditures -- a confident consumer is more likely to increase expenditures. This could lead to upside surprises in holiday sales and could also translate into an increase in auto and light truck purchases (these types of expenditures require financing which consumers don't take out unless they believe they can afford the payments over an extended time horizon).
As for business, an increase in confidence naturally leads to increased risk-taking. I still think business will be a bit conservative; they may need to see more action from Congressional Republicans before making major changes. I think the real issue here will be tax reform, especially a lowering of corporate and personal tax rates.
