U.S. Consumers: Rising Confidence Combines with Inflation Concerns | Lord Abbett
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Economic Insights

New data on consumer sentiment point to a mixture of exuberance on a U.S. “reopening” and wariness on inflation. 

Read time: 2 minutes

We recently noted that a regional survey of manufacturers in March pointed to an expected resurgence in U.S. factory activity—but was accompanied by some sobering signals on inflation. Now, it’s the consumer’s turn.

Expectations of a strong “reopening” of the U.S. economy are being reflected in surveys of the mood of the U.S. consumer. The Conference Board’s consumer confidence index for March, released March 30, reconfirmed what was already known from surveys released earlier in the month: the combination of accelerated COVID-19 vaccine distribution and large payments to households from the recently enacted American Rescue Plan (ARP) have abruptly brightened the outlook for U.S. households.

Just how much has the mood of the consumer brightened? An average of four leading surveys shows that overall confidence is comparable to what it was in 2014, the midpoint of the previous U.S. business expansion.

 

Figure 1. Surveys Shows a Brightening Mood for the U.S. Consumer
Average of Conference Board, University of Michigan, Bloomberg, and OECD consumer indexes, January 31, 2000–March 30, 2021

Source: The Conference Board, University of Michigan, Bloomberg, Organisation for Economic Co-operation and Development (OECD), and Lord Abbett. January 31, 2000=100 (starting point). Data compiled March 30, 2021. For illustrative purposes only. 

 

Widening Inflation Concerns

But unprecedented fiscal stimulus at the current juncture—the ARP headline price tag amounts to 8.8% of U.S. gross domestic product, with the total fiscal stimulus since early 2020 adding up to  27% of output—is stoking inflation fears, a worry that the Conference Board’s March measure of consumer inflation expectations will do nothing to dispel. (Note that consumers’ deepening concerns have been accompanied by a runup in the price of gasoline, typically a key expense for U.S. households.)

 

Figure 2. U.S. Consumers Expect Rising Inflation to Accompany the “Reopening”
Inflation expectation component of the Conference Board’s U.S. Consumer Confidence Survey (left axis) and average price (US$) per gallon of unleaded gasoline (right axis), January 31, 2000–March 30, 2021

Source: The Conference Board and Bloomberg. Data compiled March 30, 2021. Lhs=left-hand side; rhs=right-hand side. For illustrative purposes only. 

 

While investors seem to be buying the idea that price increases in the present setting are compatible with a “level adjustment” and do not signal the beginning of a true inflationary process, we think this is likely a weakly held belief. After all, just as it has proven difficult for the U.S. Federal Reserve to dislodge disinflationary expectations over the past 10 years, it also proved difficult to squeeze the inflationary genie back into the price-stability bottle in many prior instances. With the U.S. economy set for an historic vaccine-led resurgence, consumers—and financial markets—are increasingly worried about the latter outcome.

 

The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy.

Forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

This article may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

The Bloomberg Consumer Comfort Index is a weekly, random-sample survey tracking Americans’ views on the condition of the U.S. economy, their personal finances, and the buying climate. 

The Conference Board’s Consumer Confidence Survey reflects prevailing business conditions and likely developments for the months ahead. This monthly report details consumer attitude, buying intentions, vacation plans, and consumer expectations for inflation, stock prices, and interest rates.

The University of Michigan Consumer Sentiment Survey questions consumers on their views of their own personal finances, as well as the short-term and long-term state of the U.S. economy. 

The OECD Consumer Confidence Index provides an indication of future developments of households’ consumption and saving, based upon answers regarding their expected financial situation, their sentiment about the general economic situation, unemployment, and capability of savings.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Lord, Abbett & Co LLC (and its affiliates, “Lord Abbett”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other non-Lord Abbett fiduciary about whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances.

The opinions in the preceding commentary are as of the date of publication and are subject to change. Additionally, the opinions may not represent the opinions of the firm as a whole. The document is not intended for use as forecast, research, or investment advice concerning any particular investment or the markets in general, and it is not intended to be legal advice or tax advice. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information.

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