Back to top

Consumer Confidence Up: A Sign of Growth?

Read MoreHide Full Article

The belief of an economic recovery might just have got stronger with consumer confidence hitting a multi-year high. A recent report by Conference Board data suggested the Consumer Confidence Index improved to 81.4 in Jun 2013 from a revised 74.3 in May 2013.

The index notched its highest level since Jan 2008, when it had touched 87.3. This prompts a sense of optimism about a steady increase in consumer spending going forward.

A recovery in the housing market, stock prices gaining momentum and improving labor market condition played vital roles to help the consumer confidence move north.

According to Census Bureau and Department of Housing and Urban Development, sales of new houses jumped 2.1% sequentially in May 2013 and surged 29% from May 2012. Additionally, unemployment rate is currently hovering around 7.6%, reflecting an improvement from 7.9% in the beginning of the year. Alongside, S&P 500 has scored roughly 9%, while Dow Jones Industrial Average has gained approximately 10% so far this year.

So, does this invoke enough confidence to say that the economy is back on growth trajectory? Although the data on the table shows that derailed economy is gradually making a comeback, it wouldn't be prudent to jump the gun.

Fed officials hinted at gradual rollback of $85 billion monthly stimulus program in the later part of the year and said that they might discontinue the program by the middle of next year if economy improves further.

Fed officials look quite optimistic about pulling the unemployment rate down to a range of 7.2% to 7.3% in 2013 with expected economic growth of 2.3% to 2.6%. Next year they further intend to restrict the unemployment rate to between 6.5% and 6.8%, and boost economic growth to 3% - 3.5%.

As for the broader economy, we need to wait and see whether the Fed’s move is in the right direction or the economy outcries for more. But if everything goes well and consumer confidence further rises with improving economy, then we could see a spur in demand with willingness to shell out more. Consumers' confidence is a key determinant for the economy’s health with consumer spending accounting for over two-thirds of U.S. economic activity.

This could prove to be a boon for retail companies, which have been actively making efforts to win the hearts of bargain hunters. Thus, Best Buy Co. Inc. (BBY - Free Report) could witness more foot traffic in their stores with consumers searching for products from bellwethers including Apple Inc. (AAPL - Free Report) and Microsoft Corporation (MSFT - Free Report) . Also, look for more people shopping in stores such as L Brands, Inc. , Macy’s, Inc. (M - Free Report) and The Gap, Inc. (GPS - Free Report) .

Let's hope the prevailing confidence in the air remains intact.

More from Zacks Analyst Blog

You May Like