The Conference Board, a private interest group, said that its index of consumer confidence increased to 101.3 in March, up from 98.8 in February. This demonstrates that consumers are more upbeat about the economy as spring begins. Overall, this is combined with an improved short-term outlook on employment and income prospects, despite that consumers have demonstrated that they were less upbeat about business success in recent months. Many economists have pointed out that consumers in recent weeks have enjoyed a windfall from the plunging gasoline prices nationwide.
The Conference Board’s survey found that 20.6% of consumers in March think jobs are “plentiful”, compared to 25.4% who thought jobs were “hard to get”. Additionally, 15.5% of those surveyed anticipated that more jobs to be created in the next six months and 18.4% of those surveyed expected that their incomes would rise in the next six months, while only 9.9% believed that their incomes would fall.
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I think we might see a bit of a Friedman-permanent-income-esque response to the collapse in oil prices. People are hesitant to take the collapse as permanent – indeed oil is probably not sustainable under $50. All the same, as the rapid collapse might demonstrate, the prices is equally unsustainable at $100. I would be very surprised if we see oil top $100 in our lifetimes for any sustained period (over a year). Consumers take time to fully absorb the significance of cheaper oil, and I think we could see a lasting, gradual boost in consumer confidence due to cheap oil.
As unemployment falls to within a 1/10 a percent of the natural unemployment rate, I am not surprised to see confidence in the labor market. I also remember reading something earlier in my college career about using the housing market to gauge consumer confidence. The argument is along the lines of a positive correlation between housing demand and consumer confidence. Not so sure about the validity of the second point, but an interesting argument to consider.
We can’t be sure about “the” natural rate – it’s a conceptual construct, not an empirical one. If we use the Friedman “non-accelerating-inflation-rate-of-unemployment” then it’s not really unemployment that we want to look at, it’s inflation. But we’ll only know with hindsight how we’ve done — until we see inflation we can’t be sure we’re all the way down to the NAIRU level. Of course there are other measures of slack, including how many people are NILFs.
I’ve read recently that despite the windfall from gasoline savings, Americans are not spending these savings as economists had expected. It may not negatively reflect pessimist about the labor market but may reflect concerns about the recovery as a whole.
Consumer confidence is fickle, and may be least helpful when the economy changes a lot. What do I know what’s going on in job markets, unless I’ve looked recently? The income part sounds about right, but as Matthew notes, we aren’t – or aren’t yet – observing some of the behavior that would be consistent with rosy expectations.
Almost one-fifth of the population believes that their wages will increase in the next six months — this does not seem like an optimistic ratio. I would hope that the majority of workers would benefit from incremental cost of living adjustments.
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