It’s Working: Fed Messaging, Stock Rally Juice Consumer Confidence

Suddenly, Americans feel great.

That’s not true. They’re pretty miserable actually. But in the 2020s, words like “good,” “better” and “great” are highly relative. This is, after all, a decade so far defined by plague, war and inflation. So if things are “less bad” this month compared to last, that’s “great.”

With that in mind, Conference Board confidence printed a big beat for December in data released on Wednesday, underscoring the message from the preliminary read on University of Michigan sentiment (the final update on that series is due later this week).

At 110.7, the Conference Board gauge blew away estimates. Consensus expected just 104.5. The month-to-month increase was the largest since March of 2021, when new “stimmy” was in the pipeline.

The headline gauge now sits at a five-month high. The present situation index rose a dozen points from November to 148.5. The expectations gauge rose all the way to 85.6 from 77.4.

Do note: Recessions have historically been associated with expectations readings below 80. So, as of December, that measure of Americans’ collective macro outlook was no longer indicative of recession within 12 months, which is to say no longer indicative of recession in an election year. Two-thirds still said a downturn’s possible in 2024, but the perceived likelihood fell to the lowest level of the year, Conference Board chief economist Dana Peterson said.

Although families’ assessments of their own current financial conditions worsened marginally in December, consumers were broadly more constructive on overall, economy-wide business and labor market conditions.

As for the outlook, there’s no mystery: It’s about rates, stocks and inflation. A gauge of interest rate expectations dropped to the lowest level in nearly two years this month, and consumers’ outlook for equities was the most optimistic since the middle of 2021. Those go hand in hand: The Fed pivot helped engender a rally on Wall Street, and now consumers see very little chance of higher rates over the next year, a period during which they expect stocks to do well.

Note that fund managers feel the same way about rates. In the December vintage of BofA’s Global Fund Manager survey, released on Tuesday, 89% said short-term rates will be lower over the next 12 months. That was the most on record.

At the same time, more than nine in 10 respondents to BofA’s poll said the Fed’s done hiking rates for the cycle.

Year-ahead inflation expectations in the Conference Board survey fell again, and consumers’ forward-looking perceptions of their financial situation improved. Buying plans for cars, houses and household durables “rose moderately across the board, ending the year on a slightly more positive note,” the survey color said.

The labor differential widened nearly five points to 27.5, the highest in five months.

Taken together, the upbeat read on sentiment, receding inflation expectations and the more favorable view of the labor market spoke loudly to the soft landing story, even if you could argue the upturn in confidence risks a rekindled inflation impulse.

Finally (and without wanting to be accused of trafficking in the same sort of conspiracy theories I so readily decry), I’d be remiss not to acknowledge the possibility that, in light of recent polling, and considering what certainly feels like an engineered market melt-up, some key decision makers in Washington might’ve decided that a whole-of-government approach is warranted to bolster voter confidence in the service of inoculating America’s teetering democracy against “all enemies,” foreign and especially domestic.