Consumer confidence — a measure of how much the average American is willing to spend based on their confidence in the economy — has been gradually increasing and spiked last month as many Americans saw the reduced tax deductions or raises as a result of the new tax code that was signed in December and went into effect in January, according to MarketWatch. The measure, which was expected to rise but outperformed expectations, is now at its highest since 2000 — well before the beginning of the so called “great recession”, which began to impact Americans in 2008.
Reports of consumer confidence increases began prior to the passing of the new tax code, which worried some economists as it was, and in many ways still is, unclear how the new tax code would impact the economy on the longer term.
That consumer confidence is still increasing suggests that the tax code is not the only thing that consumers have to feel confident in, but that they trust that the economy will continue to perform well in the future.
“Overall, consumers remain quite confident that the economy will continue expanding at a strong pace in the months ahead,” Confidence Board Director of Economic Indicators Lynn Franco told Market Watch.
Consumer confidence is not the only measure of the country’s economy, however. The stock market is both an economic indicator and a way for individuals to strengthen the economy by investing in businesses.
The stock market made record gains beginning late last year and into last month as investors expected high profits following the new tax code, but has since been in flux due to economic uncertainty from looming government shutdowns and conflicting corporate reports following the signing of the tax code. One New York company that analyzes political risk to the stock market has even introduced a new index to measure concerns over special counsel Robert Mueller’s investigation of Russian interference in the 2016 election and its potential impact on markets, according to CNN.
Last week, much of the stock market was dragged down after retail giant Walmart announced lower-than-expected profits after promising bonuses and wages to many employees as a result of tax breaks. The stock market has been gradually slipping both by actually falling and by making slow recoveries from those falls.
“The comfort of the rebound should soon fade, either from fear of the Fed, disappointing data, or some combination of the two,” Tony Dwyer of Canaccord Genuity told Bloomberg, referencing the Federal Reserve, a government agency that controls many aspects of the economy.
Federal Reserve chairman Jerome Powell announced on Tuesday that the Federal Reserve expected increasing inflation due to the strength of the economy, which caused a dip in the stock market, according to Reuters. Many investors are wary of inflation because it reduces spending power and sometimes causes workers to pursue higher wages, which increases the cost of running businesses and decreases the amount that investors receive from companies. Many investors are also skeptical of Powell’s personal views on the economy, according to MarketWatch. Specific fears regarding the Federal Reserve include potential increases in interest rates as the Reserve attempts to prevent the economy from “overheating,” according to Reuters.
While the Federal Reserve tries to limit inflation, high consumer confidence as inflation increases may delay any risk to stocks beyond the fall that already occurred during Powell’s speech. Fear in the stock market causes sell-offs which result in further falls, but if the economy stays strong in other ways the comparatively low stock prices resulting from a sell-off can lead to increased purchasing and renewed strength later on.
