Is Confidence Improving?

We have had some good economic news in the past month. The news has included positive jobs growth, increased consumer spending and increased consumer confidence. Each number, while positive, still reminds us that we have a long way to go. If we look at the markets you would think we are free and clear from recession and bad news. Oil prices, the stock market and rates have all moved up significantly. On the other hand, if we look at the recovery statistics, we are far from free and clear. A few hundred thousand jobs do not make up for eight million in losses. Yes, consumer confidence is up. The Conference Board, a New York-based research group, said its Consumer Confidence index rose to 52.5 in March from 46.0 in February. However, a reading of 90.0 is supposed to describe a stable economy and 100.0 a growing economy. If the numbers are still dismal, why are the markets celebrating? For one, we are climbing out of such a large hole, any move in the right direction feels good. This quote from CNN/Money seems to give us a second explanation: It’s a growing optimism that can best be seen in consumers’ actions, not their answers to various polls. 'If you look at what they’re saying, they’re still very nervous,' said Mark Zandi, chief economist at Moody’s Economy.com. 'But if you look at what they’re doing, they’re more convinced that things have turned the corner.' Consumer spending is improving at a faster pace than many had expected at this stage in the recovery. We have said this time and time again. This is a crisis of confidence and this malaise does not end until confidence returns. Even if this is the beginning of the cycle, any evidence of a bolder consumer is going to be good news. Despite this theory, it is still possible that the markets are getting ahead of themselves with regard to the recent gains we have seen. Expect some pull-backs along the way.