By Anwiti Bahuguna, Ph.D., Senior Portfolio Manager, Global Asset Allocation
Consumers feel good about the growth possibilities in the U.S. This coincides with two things: the election of Donald Trump and an improving economy. Will this confidence endure?
The last time consumer confidence was this high was during the 1997-2000 technology boom - a rare occurrence in the more than 50-year history of the Conference Board Index of Consumer Confidence. We haven't seen such strong consumer confidence in the entire recovery period following the 2008 global financial crisis. In fact, all of the components of the confidence survey are much stronger, including consumers' characterization of current economic and labor market conditions and expectations of future economic, job and income growth.
The overall increase in consumer confidence has coincided with the election of President Trump, and confidence levels reflect that expectations are high for a business-friendly political agenda. Therefore, unsuccessful implementation of pro-growth policies would be disappointing to markets. We saw an example of that play out recently when the repeal and replace of the Affordable Care Act failed to move forward, and equity markets temporarily declined as investors questioned if the pro-growth policy agenda will come to fruition.
"The failure of the repeal and replace of the Affordable Care Act gave us a glimpse into what may happen if legislative changes don't materialize."
- Anwiti Bahuguna
However, the strength in consumer confidence has also coincided with cyclical improvements in the economy. It reflects the improving employment and wage data reported in the past few months, and it bodes well for future consumer spending and GDP growth. Even if increasing inflation keeps first-quarter GDP on the lower end of the predicted 2017 GDP growth range, we expect this weakness to be temporary.
Consumer confidence overall is at record high levels, and it may be hard to believe it can get much higher without the legislative action that some of it is based on. Regardless, the improvement in consumer confidence does not only coincide with the election of Trump; there is also real evidence of an improving economy. Even if there are periods of temporary market volatility when legislative setbacks occur, we expect overall growth to continue.
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