Holiday Cheers–Consumers Feel Happier!

Popular Economics Weekly

It’s back to school time, and consumers are feeling the holiday spirit already. Americans in September were most optimistic about the economy since the summer of 2007, in part because of a happier view of the U.S. labor market. And coupled with rising wages, could mean a very good holiday season for businesses.

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The index of consumer confidence climbed to 104.1 this month from 101.8 in August, the Conference Board said Tuesday. That’s well above the 99.3 forecast of economists and it marks the highest level since August 2007, just a few months before the onset of the Great Recession.

The Conference Board says it is about better job security, but I believe rising wages are a better reason for optimism. The present situation index, a measure of current conditions, climbed to 128.5 from 125.3. That’s also the highest level since August 2007.

“Consumers’ assessment of present-day conditions improved, primarily the result of a more positive view of the labor market,” said Lynn Franco, director of economic indicators at the board. “Looking ahead, consumers are more upbeat about the short-term employment outlook, but somewhat neutral about business conditions and income prospects.”

But there is also new data showing middle-class household incomes growing at the fastest rate since the recession, which seemed to confirm that a recovery is finally touching the lives of ordinary, especially middle-class Americans.

This may shake up retail sales that have also been in a summer swoon, because the largest wage growth is occurring in the lowest income brackets that have to spend most, if not all, of their incomes to maintain a decent standard of living.

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Graph: Marketwatch

This could largely be due to the rise in the minimum wage in some large cities, of course. The official poverty rate fell 1.2 percentage points between 2014 and 2015 to 13.5 percent, and the number of people in poverty fell by 3.5 million, says the Census Bureau. The threshold for a family of two adults and two children to be considered living in poverty was $24,036. 

Rising consumer confidence is a good sign for continued economic growth, needless to say. But will it be enough to get us out of the 2 percent GDP growth rate of late? We will actually need much more, like more capital expenditures that has been cut back during the years when budget cuts were the priority, rather than productive investments.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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