Portfolio Management 101 > Blog > Consumer Confidence Rises But Doubts Remain

Consumer Confidence Rises But Doubts Remain

The good news is that the Conference Board’s confidence gauge rose to 101.5, well above the July reading of 91 and beating the consensus analyst estimates of 93.4. There are two factors that make me cautiously enthusiastic about the latest reading, however. On the one hand, the survey for this month’s reading was completed on August 13th, well before the recent turmoil in the equity markets. I venture to guess after fielding many calls from clients over the last few days and answering the question:

Is the world going to end?

that if that survey would be taken today, the results would be quite different. Many clients were concerned that we would spiral into another 2008-type scenario, which, I calmly explained, is not likely due to the different circumstances that we are in today such as: upturn in housing, strengthening labor market, moderate GDP growth, etc.

What makes me less enthusiastic about the 101.5 reading on the latest survey is that while the gauge of present conditions was the highest since November 2007 (again, it was taken before the recent equity market decline), the share of Americans that expect wages to increase over the next 6 months dropped to the lowest level this year.

So while consumers are expecting more jobs to be available, there is a tempered enthusiasm regarding the possibility of higher wages. This means that despite savings and higher disposable income due to lower gasoline prices, consumers may not be ready to spend for awhile longer. Savings from lower gasoline prices usually have a lagged positive effect on consumer spending. In fact, historical data would indicate that the consumer should be spending those savings right about now.

With the lower wage growth expectations, however, the lagged delay in consumer spending may drag on for some time. Throw in a double digit market decline into the mix and my bet is that consumers will be tight-fisted for some time.

PM101

PM101

Investment Strategist at Portfolio Management 101
Patricia Moses has been managing investments since 2002 and has experience managing investments for individuals and institutions at all levels. She started her investment career in 1999 evaluating hedge funds and other alternative asset classes for a small regional investment consultant. After a brief time, she joined a family office as an Investment Advisor managing assets in excess of $300 million across a variety of asset classes.

Patricia joined Portfolio Management 101 in 2010 in a Portfolio Manager and Business Development role and became an Investment Strategist in 2014.
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