I was conflicted about my baseball-base-running abilities because I was the slowest kid on the team. I was confident I could hit it hard enough to reach first base, but reaching third or second base seemed risky. The American consumer feels the same way. They like the near term but have big concerns about the future.
Consumer confidence numbers released Tuesday showed an unexpected improvement in US consumer confidence in May after dropping for three straight months. This report shows Americans are optimistic about their current financial situation and the near-term outlook.
This is important information for investors as it gives a temperature reading on the customers of the companies they invest in. Though the report was positive, it also showed that the American consumer, which accounts for almost 75% of all US corporate purchases, has concerns about the future.
The mixed survey showed that consumers expect the stock market to continue rising and that they will continue to be able to purchase large items. Not surprisingly, consumers mentioned that food and grocery prices are having the most significant financial impact. Despite their concerns about higher prices and the economy twelve months from now, consumers did not plan on reducing their spending. Most plan to buy major appliances over the next six months, including television sets, refrigerators, vacuum cleaners, clothes dryers, and even autos.
One must look beyond the report’s short-term expectations to see the full picture. For the second consecutive month, most consumers indicated a recession will likely occur over the next year. The belief that the economy could slip into recession over the next year might be why most consumers’ home purchasing plans remained at the lowest level since August 2012. These plans might be influenced by the majority opinion of the survey that says consumers expect interest rates to increase in the year ahead.
American consumer habits are good indicators of the future. A healthy stock market needs financially healthy consumers. When consumer confidence is high, consumers tend to spend more money on big-ticket items like automobiles and large appliances, which provide needed sales and revenue to the companies we invest in.
Consumers wish food prices were lower, but things are pretty good for them overall. So why all the negative feelings about the next year?
My bet is the election. The presidential election is the elephant (or donkey) in the room. My guess is that most Americans are dreading it, much like when we were kids and knew we would have to clean our rooms after playing with our friends. Most Americans are comfortable with their finances despite dealing with higher prices and interest rates but have reservations about the coming months.
I believe the Lord works in mysterious ways. He knew I would love baseball and let me grow up in a town with a lopsided baseball field. With a swamp behind the backstop and a state highway over the outfield fence, our right field fence was only 165 feet from home plate. To get a double, all I had to do was pop it up in right field and pray for a south wind. Now triples, well, I can’t write about those because chubby guys like me didn’t have any. I figured out how to deal with my reservations and enjoy the game; I am hopeful investors will do the same.
Have a blessed week!
Dr. Richard Baker, AIF®, is the founder and executive wealth advisor at Fervent Wealth Management.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
