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High Consumer Confidence Shouldn’t Make Us Confident

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Apparently, the American consumer has bought into the notion that everything is great in the economy. Consumer confidence surged to an 18-year high this month and is close to the all-time record.

The Conference Board Consumer Confidence Index jumped to 138.4, up from 134.7. Analysts expected a dip.

It was the best reading since September 2000, bringing the index close to the all-time high of 144.7 reached that same year.

The mainstream touted soaring consumer confidence as another sign of a booming economy. But it’s not clear that consumer sentiment is a good gage of actual economic conditions. It often has more to do with perception than reality. You do remember what else happened in 2000, don’t you? The dot-com bubble burst.

As we pointed out in a recent article, there are certainly a lot of things that look really good right now. But there is a rotten underbelly to this booming economy. Your average consumers don’t hear about the dark side. They’re bombarded with the same message every day. Everything is great. No wonder they think everything is great.

ZeroHedge dug a little deeper into the consumer confidence numbers and found some more troubling signs.

In the first place, while consumers are giddy about their economic prospects, they’re not so confident that their incomes are going to grow in the near future. The number of people expecting income growth fell the most since April 2017.

Regarding their short-term income prospects, the percentage of consumers expecting an improvement declined from 25.4% to 22.6%, but the proportion expecting a decrease declined marginally, from 6.9% to 6.5%.”

In fact, the gap between “present situation” and “expectation” has widened to what ZeroHedge calls “historically concerning levels.” This kind of gap generally precedes recessions, as the following chart shows.

ZeroHedge pointed out one final dichotomy. Americans are not saving. Historically high consumer confidence combined with low savings rates have been, as ZeroHedge put it, “an ominous precursor for the stock market.”

The bottom line is all of this talk about high consumer confidence should not necessarily make us confident.

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