Tags: consumer | confidence | small business | jobs | housing prices

Is Soaring Consumer Confidence Irrational Exuberance?

Is Soaring Consumer Confidence Irrational Exuberance?
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By Tuesday, 29 September 2020 01:35 PM Current | Bio | Archive

INDICATOR: September Consumer Confidence and Small Business Jobs and July Housing Prices

KEY DATA: Confidence: +15.5 points; Current Conditions: +12.7 points; Expectations: +17.4 points/ Small Business Jobs Index: +0.06%/ Housing Prices: +0.4%; Over-Year: +4.8%

IN A NUTSHELL: “With their kids starting to get out of their hair and their houses and back into schools, parents are becoming exuberant.”

WHAT IT MEANS: The virus has created a lot of pressure in many households, as parents have had to juggle work, school and baby-sitting. For many, that was not a pleasant world. But schools are slowly reopening and that is making many adults and probably even many children, smile as well. I am not sure a lot of kids found it fun being cooped up in their houses with their parents looking over their shoulders. Anyway, that is my explanation for why the Conference Board’s Consumer Confidence index surged in September. Both the current conditions and expectations measures were up sharply. The respondents said that there were more jobs available, business conditions were getting a lot better and that the future looked much brighter. Rising confidence is a great sign that spending could remain strong going forward.

While households are saying that conditions are getting a lot better, small business hiring is getting better a lot less rapidly. The Paychex Small Business Jobs Index edged upward in September. That may appear small, but at least it was the first positive number since May. The index is down 3.85% over the year and a little more since February. This index indicates that hiring in the key small business segment of the economy is not yet coming back very quickly.

Another housing measure, another sign of the housing market’s strength. The S&P CoreLogic Case-Shiller index rose solidly in July. Of the twenty metro areas reported, only New York posted a decline. Over the year, price gains are accelerating and some areas are getting a little steamy. Since July 2019, prices in Phoenix were up 9.2%, 7% in Seattle 6% in Charlotte. Most metro areas are seeing their price increases rise faster and from some of the other data we have seen, I wouldn’t be surprised if we see a few more cities with gains in excess of six or seven percent.

IMPLICATIONS: OK, maybe I got carried away with ascribing the entire surge in confidence to the reopening of schools. But can you really argue I am wrong? Parents may love their kids but that doesn’t mean they want to live with them 24-7. Let’s wait for the October numbers before we start believing happy days are here again. Indeed, with all those wonderful, uplifting political ads bombarding those of us who live in swing states, which may be more than usual this year, it just might be hard to believe anything, good or bad, that the consumer attitude measures say. My point is that the rise in confidence is needed, but did the economy really improve that much in September? What happened that could have changed perceptions so much? We get the employment report on Friday and that will provide an indication of what is happening in the labor market. The numbers should be good, but probably not nearly as strong as we have seen for the last few months.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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Rising confidence is a great sign that spending could remain strong going forward.
consumer, confidence, small business, jobs, housing prices
Tuesday, 29 September 2020 01:35 PM
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