Tuesday’s Consumer Confidence report for the month of March showed a moderately larger than expected decline from February’s multi-year high. While economists were forecasting the headline index to rise to 131.0 from last month’s initially reported reading of 130.8, the actual reading came in a little more than three points weaker at 127.7. While the index declined, besides last month’s multi-year high, there has only been one other month during the current cycle where the headline index was higher.
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One of the key reasons why confidence is still right near multi-year highs is because a large percentage of consumers think getting a job is like shooting fish in a barrel. As shown in the chart below, just under 40% of those surveyed think jobs are plentiful.
One of the fascinating aspects of the monthly Consumer Confidence report lately has been the breakdown in confidence by age. The chart below shows the historical levels of Consumer Confidence among consumers under the age of 35 and those above the age of 55. While the two series tend to move in the same direction, one pretty much constant over time has been that younger consumers (blue line) are more confident than older consumers. That was especially the case coming out of the financial crisis when confidence among younger consumers was much quicker to recover.
While younger consumers have generally been more confident than older more ‘jaded’ consumers, ever since late 2016 confidence among older consumers has surged. The surge has been so strong in fact, that in this month’s report, confidence among older consumers (>55) exceeded confidence among younger consumers for only the fourth time since 1980. The only three other months where this occurred were in 1999 (April and October) and 2000 (November). The chart below shows the spread between confidence levels among both age groups cited above going back to 1980. What’s really interesting about this chart is that from the time when President Obama was first elected through the election of Donald Trump, the spread in confidence reached record highs. Right after President Trump was elected, though, the spread narrowed as older Americans increasingly became more optimistic.
The above example would seem to suggest that politics has played a role in confidence among consumers as older Americans tended to support President Trump, while younger Americans were supporters of President Obama and subsequently Hillary Clinton. Besides politics, though, another factor contributing to the shift in sentiment among these two age groups comes down to interest rates. The chart below compares the spread shown above (going back to 2009) to the yield on the three-month US Treasury plotted on the right axis on an inverted scale. Older Americans tend to be more reliant on fixed income securities than other asset classes, so when rates are low, they feel it the most. Therefore, it makes sense that from 2009 through late 2015 when interest rates were at historically low levels, the spread between the two age groups really widened. Within a few months of interest rates bottoming, though, confidence among younger Americans relative to older Americans peaked.