For all intents and purposes, consumers could be justified in having very high confidence in the U.S. economy now. Personal financial prospects appear better than they have been in a long time. However, according to some consumer confidence indexes, levels have recently tracked downwards. With first-quarter GDP growth this year understood to be .2%, one has to wonder how confident should consumers be in the state of the U.S. economy.
Consumer sentiment at the micro level has been flying high in recent months. Economic conditions have given a boost to domestic expenditure levels. Similarly, a heightened sense of employee job security and wage growth momentum have been encouraging factors. The low fuel costs have also added to the sentiment.
Yet, amid this atmosphere, the U.S. dollar has been on the rise. This no doubt caused the drop in the percentage of exports of goods and services by 7.2% in the opening quarter. This partly explains the drop in GDP growth from the previous quarter by 2%. The 2% fall is not without precedent; in the same period of the 2014 financial year, there was negative GDP growth of -2.1%.
Other important factors affecting the overall economic confidence in the U.S. is the influence of global powerhouses, Europe and China. Concerns are still held over Greece’s ability to pay back its debt. It seems this concern could be sticking around for the long haul. China’s economy, on the other hand, continues to show signs of weakness and now is at its lowest point in the last six years.
This recurring news from China and Europe provides all the more reason for confidence in the U.S., who have arguably one of the most diversified and technologically advanced economies in the world. As key indicators in the labor market continue to improve and the Federal Reserve acts on its advice that it will raise interests rates, the likelihood is that the U.S. dollar will continue its relentless rise despite a drop in recent days.
Taking a balanced view of all the factors, a commentator might say at the moment: consumers have a right to be confident, yes, but not too confident. The outlook does indeed look quite rosy, but it is not without concerns, as discussed in detail above. Investment and consumption go hand in hand, and domestic expenditure growth alone will not drive economic performance upwards. A rising dollar results in weakening foreign investment and expenditure on exports, which, of course, decreases economic output.
It is worthwhile being reminded that economic fluctuations are to a large extent determined by expectations. Therefore, the mixed messages being signalled by the U.S. economy at the moment, point to perhaps even more uncertainty in the future. The markets' eyes will be on the Federal Reserve who takes all these factors into consideration when weighing up the positives and negatives associated with any alteration in any monetary policy. Consumer confidence on a personal level is a major influence on the decision, as the eventual decision itself will impact consumer expectations.
