"When you have confidence, you can have a lot of fun. When you have fun you can do amazing things." - Joe Namath
I have to say that the first quote resonates with me as when I was a college student it seemed that life was easy and that everything just fell into place. Looking back I was filled with confidence and completely ignorant of the risks that I was surrounded by and yet I managed to succeed where others failed. Fast forward to today and while a lot (it would be very arrogant for anyone to say all) of my ignorance is gone I am still having fun and that is the true secret to success.
With that in mind it is interesting to see the consumer confidence index at levels not witnessed since 2004, predating the Great Recession. A few things jump out at me regarding these numbers the first of which is that this number is higher than the numbers achieved in 2005 and 2006 when everyone was making money hand over fist in the property market. That is amazing to me as the majority of people's incomes are still far from exceeding those income levels. As you can see in the chart below the all time highs were around the time of the NASDAQ bubble in 2000, another heady time for investors.
The increase in consumer confidence is a direct result of the reduction in the price of energy and gasoline with the added bonus of more jobs available. It certainly appears that the consumer is ready to open their check books once again and jettison the United States economy into orbit but before we get too excited the index is pretty volatile and when a spike occurs as it did in January it often reverses itself in the following months. That said the trend is a healthy one and barring any unforeseen global problems it looks like it will be a boost to the economy in 2015. As I mentioned in last week's blog it looks like it is now the US consumer against the world (can the US consumer spending drag the rest of the world out of its slowdown) and it will be interesting to see who wins out.
As the above quotes show confidence in anything can make the difference between success and failure and with the consumer making up roughly 70% of the United States GDP it is very important to have the confidence numbers high. As this is one of the most important leading indicators it appears that the US economy is in good stead but as you can see by the chart above, consumers are notoriously bad at timing their confidence as many of the peaks in the confidence number has been met with recessions (the rest of the world wins).
That said after six years it finally seems as if the consumer is being touched by the Federal Reserve's stimulus as while job growth has been trending in the right direction for a while, the wage rate has been stuck. There is a faint glimmer of hope that wages will finally start to appreciate in 2015 which is good news as this should translate into a revival of spending Furthermore, as I have eluded to in previous blogs, the growth potential of the United States is far lower than what was previously thought and appears to be around 2.00%. What this means is that should GDP growth exceed this number that the economy will begin to vacuum up some of the underemployed giving a real boost to consumer sentiment (U.S. consumer wins).
So on the surface it appears that the United States is headed in the right direction and that the footing is becoming more solid. So who will win, the U.S. consumer or the rest of the world? I look at it in the same way as trying to getting a footing in deep water, while the U.S. economy is still a little out of its depth, when the wave pulls back it has a chance to gain traction on the sand it just remains to be seen if the footing gained is sustainable (U.S. consumer wins) or whether it will be washed away by another crashing wave (the rest of the world wins) but I have to say I am hopeful that this time that the U.S. will win.
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