Early last week, the September 2018 Consumer Confidence Index registered at 138.4 which was above the projected number of 132. This was a modest gain over the 134.7 index in August. Perhaps more remarkable, is that this number marks an 18 year high for the index with the only higher number coming in September of 2000 which was 144.7.
What is the Consumer Confidence Index? The index is based off of the consumers’ perspective of the current state of the economy and their outlook over the next 6 months. Consumer’s are asked about the state of current business conditions and the state of current employment conditions. This makes up 40% of the index. With the current unemployment resting at 3.9% and the projected GDP growth expected to be 2.9% for 2018, consumers are feeling pretty good about what’s happening. Consumers are also asked about their expectations of current business conditions, current employment conditions, and total family income over the next 6 months. The answers to these questions make up the remaining 60% of the index. Those consumers polled are asked to respond to these questions with one of the following: 1. Positive 2. Negative 3. Neutral.
This index is largely monitored by manufacturers, retailers, lenders & the government. As manufacturers and retailers move into Q4, the September index opens up opportunities to ramp up inventory and prepare for a good holiday spending season for retailers. Manufacturers may take this opportunity to expand, improve machinery, and hire more people to meet demand. Lenders will be prepared to fund these businesses and the government could create tax incentives for those businesses planning to grow, hire employees, add machinery, etc.
One such program the government implemented was expanding the Section 179 deduction to $1,000,000 for 2018 plus 100% bonus depreciation for up to $2,500,000 in purchases. What this does is accelerate depreciation for a piece of equipment purchased. Instead of following a depreciation schedule, businesses can save big in taxes by simply purchasing a piece of equipment. This gives lenders higher demand for those businesses looking to use qualified financing to purchase these pieces of equipment.
The Consumer Confidence Index is generally considered a lagging indicator since the consumers answers are based on what has transpired up until the questions have asked, but one thing to consider is a change of 5% or more in the index is considered a change in direction. It will be interesting to see what the index registers in October. In the present moment, businesses and consumers are feeling great about the state of the economy and where it is headed.