Showing posts with label Consumer Sentiment. Show all posts
Showing posts with label Consumer Sentiment. Show all posts

Tuesday, December 2, 2014

U.S. Consumer Confidence Rises with Economic Growth

The economies of the world’s nations are on a slow stroll while America has quickened its pace to a leading role as one of the only bright Northern lights for others to follow. Improvement is so significant that GNP has been revised upward from 3.5% to 3.9% (As cited in CNN Money). Other nations are increasingly concerned about lower inflation and the potential for deflation. The U.S. is doing so well it may start to raise interest rates in alignment with growth.

Americans are becoming increasingly positive about their future prospects within the economy. According to a recent gallop poll consumer confidence rose to -7 which is the highest it has been in 17 months (Gallop, 2014).  The poll is a combination of how people view the economy. According to the poll 24% said the economy is excellent while 30% said it is poor leaving the total balance at -7. 

The U.S. economy is also moving forward with some of that growth coming from lower energy and oil costs. Morgan Stanley’s global economist stated, “Lower energy costs boost broad economic activity in the near term and fiscal policy becomes a bit more supportive of growth in 2015” (as cited in Market Watch). Oil is a significant cost that impacts everything from shipping to production throughout the economic system.

The economy is a whole system that incorporates financial metrics as well as difficult to define human feelings, emotions, and neuro-economic choices. Improvements in oil and economic conditions are one benefit while improvements in consumer and investor mood are another. Getting investors and employees on the same page is terms of investment and skill is beneficial. 

Those not feeling positive are likely suffering from job displacement related to economic transitions in the market. Using economic hubs as a method to bit size policy to match investment in business with new learning in job skills to create new products is beneficial. Fiscal policy should focus on hedging the power of the new found economic growth to foster competitive clusters that can compete on the international market.

Friday, September 26, 2014

Does Improvements in Consumer Sentiment and GNP Indicate Future U.S. Growth?

The University of Michigan recently announced improvements in consumer sentiment from 80 in March to 84.6 in September (1).  Consumers who have been frugal with their pay checks over the past may now be willing to open their wallets. Increased consumer spending matched with improvements in Gross National Product (GNP) could be a good sign for the economy. 

Consumer sentiment and sales are two different things but certainly positive impressions today can lead to increased sales tomorrow.  According to Gelper, et. al. (2007) positive consumer sentiment is followed by increased purchases of products and services in the trailing 4-5 months. They argue that consumer sentiment maintains some predictive power over consumer spending. 

Another complementary announcement by the Commerce Department posted a rise in Gross Domestic Product (GDP) to 4.6% (2).  Positive GNP numbers were realized from personal consumption expenditures, exports, private inventory investment, state and local government spending, nonresidential fixed investments, and residential fixed investments.  

Consumer sentiment does have an impact on GDP. Negative consumer sentiment can lower GNP and positive consumer sentiment can raise GNP even though they are not associated with traditional market fundamentals (Matsusaka & Sbordone, 1995).  Contrary to popular opinion, consumer sentiment is strong enough to influence a 13 to 26 percent variance in GNP. 

Together these numbers support the idea that growth in consumer spending is more likely over the next few months. A short lag is not necessarily a bad thing if consumer spending also prompts American manufacturers to invest more in their operations to fulfill consumer needs and further strengthen GNP. It is possible that long-term exports could rise as U.S. based companies find parity with low cost foreign providers. 

Gelper, et. al. (2007). Consumer sentiment and consumer spending: decomposing the Granger causal relationship in the time domain. Applied Economics, 39 (1). 

Matsusaka, J. & Sbordone, A. (1995). Consumer confidence and economic fluctuations. Economic Inquiry, 33 (2).