Consumer confidence soars – does the credit go to Trump?

Consumer confidence soared in December – beyond economists’ expectations – reaching the highest level since January 2015, according to a recently released consumer survey.

Preliminary data from the University of Michigan survey, often seen as an indicator for the future of the economy, found that consumer sentiment, expectations, and views of current economic conditions all jumped from last month and this time last year, representing a dramatic turnaround from October that saw one of the lowest levels of confidence since 2014.

The survey’s Chief Economist Richard Curtin credited the change to President-elect Donald Trump, who has pledged to keep jobs in the United States and save the economy. His messages have boosted confidence among Americans who are only beginning to emerge from the ruins of the recession.

“The surge was largely due to consumers’ initial reactions to Trump’s surprise victory,” Mr. Curtin said in the report. “When asked what news they had heard of recent economic developments, more consumers spontaneously mentioned the expected positive impact of new economic policies than ever before recorded in the long history of the surveys.”

These results join a string of recent reports illustrating the recovering economy. Unemployment numbers are at their lowest level since 2007, and the holiday shopping season so far has seen a record number of sales. Consumer spending overall has been on the rise in recent years as well, especially as median household income rose in 2015 for the first time since the recession.  

According to the University of Michigan survey, consumer sentiment is at 98, a 4.5 percent increase from last month, while consumer expectations are at 88.9, a 4.3 percent rise. The numbers exceeded predictions of economists surveyed by Bloomberg and the Wall Street Journal.

“Respondents are viewing the election result in a very positive light,” Joshua Shapiro, chief US economist at MRF, Inc. told the Journal.

Not everyone shares that optimism, Curtin noted, saying that an "equal number volunteered negative judgments about prospective economic policies," with the least positive outlooks coming from those with a college degree and residing in the Northeast, although no group "adopted a pessimistic outlook for the economy."

Curtin warned that much of the rosy outlook might be attributed to a honeymoon period where the president must prove himself capable of carrying out his promises. Slow growth and overly high expectations may bring down the levels of confidence.

“The most important implication of the increase in optimism is that it has raised expectations for the performance of the economy,” he said. “President-elect Trump must provide early evidence of positive economic growth as well as act to keep positive consumer expectations aligned with performance.”

The 2017 forecast for real consumption stays at 2.5 percent, according to Curtin, though that may change when specific policies are proposed.