Two key barometers of American consumers show that they were robustly confident in the U.S. economy as 2017 neared its end.
The Conference Board’s Consumer Confidence Index rose to 129.5 at the close of November — its highest mark since it reached 132.6 in 2000 — and the University of Michigan’s Index of Consumer Sentiment stood at 98.5, which was its second-highest reading in 13 years.
“Consumer confidence increased for a fifth consecutive month and remains at a 17-year high,” Lynn Franco, director of economic indicators at The Conference Board, said in a statement.
“Consumers’ assessment of current conditions improved moderately, while their expectations regarding the short-term outlook improved more so, driven primarily by optimism of further improvements in the labor market,” Franco added. “Consumers are entering the holiday season in very high spirits and foresee the economy expanding at a healthy pace into the early months of 2018.”
The board said the percentage of consumers who expect business conditions to improve during the next six months increased slightly in November, from 22.1 percent to 22.4 percent; those who expect conditions to worsen decreased from 7 percent to 6.5 percent.
The board also said the proportion who expect more jobs in the months ahead increased from 18.7 percent to 22.6 percent; those who anticipate fewer jobs declined from 11.6 percent to 11 percent.
Richard Curtin, chief economist of the University of Michigan’s Surveys of Consumers, said in a statement that since the start of this year the consumer sentiment index has been at its highest levels since 2004.
“What has changed recently is the degree of certainty with which consumers hold their economic expectations,” Curtin said. “In contrast to the media buzz about approaching cyclical peaks and an aging expansion, with the implication of greater uncertainty about future economic trends, consumers have voiced greater certainty about their expectations for income, employment and inflation.”
“Inflation expectations have shown the smallest dispersion on record and increased certainty about future income and job prospects has become a key factor that has supported discretionary purchases,” Curtin added. “To be sure, caution is warranted, given that the current expansion will soon be the second-longest expansion since the mid-1800s, as well as the potential for significant changes in tax policies and the new Fed leadership and board members.”
Why are consumers more confident? Pay is rising and inflation remains low. The Commerce Department said personal income rose 0.4 percent in October (the most recent month for which data were available at press time) for the second month in a row.
Consumer spending rose 0.3 percent during the month, although that performance was down from a revised 0.9 percent gain the previous month.
The Conference Board Leading Economic Index is pointing toward continued growth. It rose 1.2 percent, to 130.4, in October after increases in August and September.
“The U.S. LEI increased sharply in October, as the impact of the hurricanes dissipated,” Ataman Ozyildirim, director of business cycles and growth research at The Conference Board, said in a statement. “The growth of the LEI, coupled with widespread strengths among its components, suggests that solid growth in the U.S. economy will continue through the holiday season and into the new year.”
Indeed, holiday-season spending got off to a good start. The National Retail Federation said more than 174 million Americans shopped in stores and online from Thanksgiving Day through Cyber Monday and that the average spending per person was $335.47.
“All the fundamentals were in place for consumers to take advantage of incredible deals and promotions retailers had to offer,” federation president and CEO Matthew Shay said in a statement. “From good weather across the country to low unemployment and strong consumer confidence, the climate was right, literally and figuratively, for consumers to tackle their holiday shopping lists online and in stores.”
“This year, consumers 65 and older proved that online shopping isn’t just for Generation Z and millennials,” Phil Rist, executive vice president of strategy at Prosper Business Development, said in the retail federation’s statement. “However, younger consumers (those under 34) are still savvy when it comes to online shopping and leveraged their smartphones the most to browse for the best deals from some of their favorite retailers.”
The housing market is also performing well. Sales of new and existing homes rose in October, the most recent month for data.
The Commerce Department said new-home sales hit a 10-year high for the month, rising 6.2 percent, to a seasonally adjusted annual rate of 685,000, from 645,000 in September. Sales were up 18.7 percent from the October 2016 estimate of 577,000.
“New-home sales are a leading indicator, and the jump in October sales are leading the economy higher as we finish out the year,” Chris Rupkey, chief economist at MUFG in New York, told Reuters. “You have to be very confident to make the biggest big-ticket purchase of your life.”
Existing-home sales also had a solid October, rising 2 percent, to a seasonally adjusted annual rate of 5.48 million, from a downwardly revised 5.37 million in September, the National Association of Realtors said.
Sales, however, are 0.9 percent below the pace the market set last October.
Lawrence Yun, the NAR’s chief economist, said in a statement that sales rose in all four major regions of the country.
"Job growth in most of the country continues to carry on at a robust level and is starting to slowly push up wages, which is in turn giving households added assurance that now is a good time to buy a home," Yun said. "While the housing market gained a little more momentum last month, sales are still below year-ago levels because low inventory is limiting choices for prospective buyers and keeping price growth elevated."
"The residual effects on sales from hurricanes Harvey and Irma are still seen in parts of Texas and Florida,” Yun added. “However, sales should completely bounce back to their pre-storm levels by the end of the year, as demand for buying in these areas was very strong before the storms."
The NAR said the median existing-home price for all types of housing in October was $247,000, up 5.5 percent from $234,100 in the same month last year. It was the 68th month in a row that the price increased on a year-over-year basis.
Sales of cars and light trucks were mixed in November, but Mark Scarpelli, chairman of the National Automobile Dealers Association, said in a statement that 2017 sales were on pace for sales of 17.1 million.
He said that would be in line with NADA's original forecast of 17.1 million, a slight decline from the back-to-back record-setting years of 2015 and 2016.
“Every dealer in America, myself included, would be thrilled with a seasonally adjusted annualized rate of above 16 million,” Scarpelli said. “Because it means that, one, the market is stable, and two, that demand is still healthy. And both factors are true in this case. We are looking at a stable market where demand — particularly for light trucks, SUVs and crossovers — continues to be very healthy.”
This week, economy watchers will see the November unemployment report. MarketWatch said the median forecast is for the economy to add 195,000 jobs and for the jobless rate to stay at 4.1 percent.
The Labor Department’s report will be issued Friday, as will the University of Michigan’s preliminary consumer sentiment index for December. The forecast is for a slight increase, to 99.