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Consumer and business confidence stay strong

It began after the November election — a wave of confidence that washed over consumers and business owners — and months later two important barometers of economic sentiment show that Americans continue to expect rising growth and prosperity this year.

It began after the November election — a wave of confidence that washed over consumers and business owners — and months later two important barometers of economic sentiment show that Americans continue to expect rising growth and prosperity this year.

On the consumer side, the University of Michigan said Thursday that its preliminary Consumer Sentiment Index for April edged up to 98.0, from 96.9 at the end of March, mainly because the survey’s index that reflects opinions about current economic conditions was at its highest level since 2000 and near its all-time high.

On the business side, the Small Business Optimism Index of the National Federation of Independent Business was at 104.7 in March, down 0.6 points from the month before, but “still a very strong reading,” the NFIB said.

“By historical standards, this is an excellent performance, with most of the components of the index holding their gains,” NFIB Chief Economist Bill Dunkelberg said in a statement. “The increases in capital expenditure plans and actual earnings are signs of a healthier economy, and we expect job creation to pick up in future months.”

“Small business owners remain optimistic about the future of the economy and the direction of consumer confidence,” NFIB president and CEO Juanita Duggan added. “We are encouraged by signs that optimism is translating into economic activity, such as capital investment and job creation.”

The only cloud over the results, and news outlets such as MarketWatch picked up on it, was that the NFIB’s Uncertainty Index, a measure of the short-term outlook, rose significantly.

“The Uncertainty Index hit 93 in March, which is the second-highest reading in the survey’s history,” Dunkelberg said. “More small business owners are having a difficult time anticipating the factors that affect their businesses, especially government policy.”

The NFIB said most of its March data were gathered before Republicans in Congress failed to advance their health care reform bill. Small businesses have been expecting President Donald Trump and the new Congress to repeal the Affordable Care Act and eliminate regulations they find burdensome.

“The April data (due out in May) will tell us much more about how small business owners are processing the events in Washington,” Duggan said. “We know they have struggled under Obamacare, and that taxes are a major concern. Congress’ failure to keep its promises could dampen optimism, and that would ripple through the economy.”

The nation’s partisan political rancor has repeatedly found its way into the University of Michigan’s monthly survey of consumers, although signs of it have lately eased, if only slightly.

“While partisanship had no impact on the Current Conditions Index (Democrats and Republicans differed by just 0.4 points), the data suggest the beginning of a convergence on the Expectations Index, with the figure for Democrats rising 7 percent and falling for Republicans by 7 percent, although the gap still remained an astonishing 50.5 index points,” Richard Curtin, chief economist of the university’s Surveys of Consumers, said in a statement that accompanied the results. “Much more progress on shrinking the partisan gap is needed to bring economic expectations in line with reality.”

“A slow pace of convergence will make it more difficult to disentangle political fervor from what appears to be a growing sense among consumers that the economy will experience fundamental changes in the years ahead,” Curtin added. “It can be anticipated that optimism will commingle with uncertainty, causing uneven spending patterns across months.”

Despite the surveys that show confidence increasing overall — the Conference Board’s Consumer Confidence Index rose to a 16-year high of 125.6 in March — consumer spending during the first quarter was lackluster.

The Commerce Department said Friday that retail sales fell 0.2 percent in March after an 0.3 percent drop the previous month that was the largest in nearly a year. The drop was blamed, in part, on the government’s decision to slow the pace of income tax refunds to fight fraud.

MarketWatch said economists expect a turnaround as delayed refunds arrive and rising wages put optimistic consumers in a spring spending mood.

“We look for consumer spending to rebound in April and following months,” David Berson, chief economist at Nationwide, told MarketWatch.

Inflation, at least for now, will not stand in their way. The Labor Department said the Consumer Price Index fell 0.3 percent in March, marking the first time in more than a year that it has declined, although MarketWatch noted that inflation is higher now than it was a few years ago.

The rate of inflation during the past 12 months slowed to 2.4 percent in March from a five-year high of 2.7 percent in February.

“One very soft month does not make a new trend,” chief economist Ian Shepherdson of Pantheon Macroconomics told MarketWatch, “so we will be looking for a clear rebound in April.”

This week the housing market comes into sharp focus. Today economy watchers will see reports on housing starts and building permits for March, and on Friday the National Association of Retailers will issue its report on existing-home sales for that month.

MarketWatch said the median forecast of economists is that home resales occurred at a seasonally adjusted annual rate of 5.6 million, up from 5.48 million in February.

Nonetheless, February’s pace was 5.4 percent higher than it was a year earlier and the rate of sales in January of this year was the best in a decade, both of which are signs that the confidence consumers and businesses continue to display may not be misplaced.


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