Consumer Confidence Hits 16-Year High In March

US consumer confidence surged to a more than 16-year high in March amid growing labor market optimism. The Conference Board said its Consumer Confidence Index soared 9.5 points to 125.6 this month, the highest reading since December 2000.

Consumers’ assessment of both current business and labor market conditions improved sharply in March as well. They also anticipated an increase in their incomes. The survey’s so-called “labor market differential,” derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the strongest since 2001.

The National Federation of Independent Business (NFIB) Small Business Optimism Index (red line), which had been declining since 2015, has reversed since Donald Trump was elected president, and it exploded in February as you can see in the chart above.

Another closely watched measure of consumer confidence, The University of Michigan’s Consumer Sentiment Index, hit its highest level since 2000 earlier this month as well, as reported last week.

Consumer confidence has been rising sharply since Donald Trump was elected president back in early November. While the Conference Board’s latest report didn’t mention President Trump by name, it would appear that average Americans – much like small business owners and CEOs – are excited about the possibility of tax reform, fiscal stimulus and deregulation.

“Consumers’ assessment of current business and labor market conditions improved considerably. Consumers also expressed much greater optimism regarding the short-term outlook for business, jobs and personal income prospects,” said Lynn Franco, director of economic indicators at The Conference Board.

“Consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months,” Franco added.

The economy’s strengthening fundamentals were underscored by other data on Tuesday showing further increases in home prices in January. The Standard & Poor’s CoreLogic Case-Shiller Composite Index of home prices in 20 metropolitan areas rose 5.7% in January on a year-over-year basis, after increasing 5.5% in December. It was the largest monthly rise in 2½ years.

Robust consumer confidence and rising household wealth from the home price gains suggest the recent slowdown in consumer spending is likely temporary. Economists expect further home price gains this year despite rising mortgage rates.

4Q GDP Revised to 2.1% – Only 1.6% For All 2016

The Commerce Department released its third and final estimate of 4Q GDP this morning. The final estimate came in at 2.1% (annual rate), up from 1.9% in the second estimate in February. The report was slightly better than the pre-report consensus for a rise to 2.0%.

Even considering today’s upward revision, 4Q GDP was sharply lower than the 3.5% growth in the 3Q. For all of 2016, GDP grew only at an annual rate of 1.6%, its worst performance since 2011, versus 2.6% in 2015.

The growth in 4Q GDP included positive contributions from consumer spending, private inventory buildup, real estate (residential and non-residential) and state and local spending. These positives were partially offset by lower export growth, higher imports and slower federal government spending.

Even before today’s final estimate of 4Q GDP, economists were already looking ahead to how well, or not well, the economy is performing in the current 1Q. We won’t get the Commerce Department’s first report on 1Q GDP until the last week of April. For now, most forecasters are expecting that GDP slowed further with growth of only around 1% in the 1Q.

Growth of only 1% or so in the 1Q seems rather surprising in light of the good economic reports we’ve seen in recent weeks, including rising incomes and booming consumer confidence as discussed above. However, GDP tends to be weaker in the 1Q each year because of calculation issues the government has acknowledged and is trying to resolve.

The economy’s sluggish performance poses a challenge to President Trump who has vowed to boost annual economic growth to 4% by slashing taxes, increasing infrastructure spending and cutting regulation – yet with few details on how this will happen. More on this topic later.

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