The Thomson Reuters/University of Michigan Consumer Confidence Index is a leading indicator for the U.S. economy
The Thomson Reuters/University of Michigan Consumer Confidence Index is an important indicator of the consumer’s perception of the U.S. economy. Similar to other consumer confidence measures, it asks consumers about their views on current economic conditions and their expectations for six months out. It’s one of the oldest consumer surveys, first started in 1964.
Consumption is the U.S. economy’s major driver, and it accounts for 70% of GDP. Consumption has been relatively subdued since the recession began, as Americans have boosted their savings rate and spent only on essentials. The real estate bubble drove consumption in the mid-2000s as people took out cash refinances and spent the extracted home equity. This increased the cost basis for many people’s homes and left them vulnerable when house prices collapsed. As a result, they’ve focused more on paying down debt than on spending.
Highlights from the report
The Consumer Sentiment Index was flat at 81.2 in February. (Consumer confidence in 1964 was 100.) The Bloomberg survey consensus was 83.4. The Current Conditions Index fell to 94, and the Expectations Index rose to 73 from 71.2 last month. Given that an index value of 90 is more or less the average over the past 50 years, consumer confidence is still on the weak side. But the index can vary widely. In January of 2000, it was 112, and in November of 2008, it bottomed at 55.3. To put the drop in perspective, last month’s number was a six-year high, so things are still pretty positive.
Consumers may be feeling the effects of increasing interest rates. However, asset prices continue to rise. We’re near highs in the stock market, and real estate prices are going up as well.
Impact on commercial REITs
We’ve been starting to see the consumer wake up and begin to spend. In particular, the luxury end of the retailing sector seems to be performing best. This is good news for mall REITs like Simon Property Group (SPG), General Growth Properties (GGP), CBL and Associates (CBL), and Taubman (TCO) as well as the Vanguard REIT ETF (VNQ).
Generally, recessions end when the consumer finally begins to spend, and often it’s out of necessity, not desire. Eventually, the clothes wear out and the 12-year-old car becomes too expensive to keep fixing. We have a tremendous amount of pent-up demand in the U.S. right now, and it appears we may be at that inflection point.
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