• INDICATOR: December Consumer Confidence and October Home Prices  
• KEY DATA: Confidence: +3.9 points; Home Prices (Monthly): +0.9%; Year-over-Year: +5.2%
• IN A NUTSHELL:  “Consumers are feeling a lot better about things and rising home prices are helping.”

 

WHAT IT MEANS:  It looks like it was a pretty good holiday shopping season and if so, it is because people are feeling good about their job situation.  The Conference Board’s Consumer Confidence Index rose solidly in December, from a somewhat disappointing number recorded in November.  The key to the rebound was a more optimistic view about the labor markets.  A growing percentage of respondents felt that jobs were easier to get while fewer thought it was harder to find work.  That was true not just for the current situation but for the future as well.  And maybe most importantly, workers are starting to believe that their incomes will rise.  

As for the economy, there was a bifurcation of responses.  More thought the economy was getting better but there was also a growing percentage that worried conditions were softening.  Looking forward, there was a decline in those who believed conditions would strengthen and who thought they would weaken.  It seems that when it comes to the economy, the attitude is essentially more of the same.

The improving housing market may be helping pump up the positive consumer attitude.  The S&P/Case-Shiller Home Price Index rose sharply in November.  On a year-over-year basis, the gain is accelerating, continuing a trend we have seen for several months.  The increases ranged from a low of 1.9% in Washington to a high of 10.9% in Denver, Portland and San Francisco.  The price gains are spread across the nation as every one of the twenty large metro areas that are reported posted an increase in October, using the seasonally adjusted data.

MARKETS AND FED POLICY IMPLICATIONS: With home prices increasing, families are feeling better about their financial situations and that is helping keep spending up.  

MasterCard Advisors reported that between Black Friday and Christmas, sales, excluding gasoline and vehicles, jumped a robust 7.9%, leading to a decent 4.6% rise for November-December period.  Given all the sales that occur post Christmas, it looks like consumers spent a lot of money this year.  And when you consider that vehicle sales were off the charts, the shopping season looks even better. 

Remember, when you buy a vehicle, you usually wind up with a vehicle loan.  That means lots of families now have to make monthly payments that is limiting cash flow.  So, it is good to see that people still found their way either to the malls or their favorite websites to spend, spend and spend some more.  Investors should be buoyed by the improving consumer picture, but they need to remember that the Fed watches the data as well. 

Confidence that the economy is in good shape, and it is, will allow the Fed to continue unabated on its path toward more normal interest rates. 

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm. To read more of his blogs, CLICK HERE NOW.