“What, Me Worry?”
First, thanks to Alfred E. Newman and Mad magazine.
The conventional wisdom among economists has generally held that people don’t like uncertainty and the unknowable. When faced with the prospect of disruption and changes without clear outcomes, they become less confident and more cautious about making big decisions, particularly as they relate to finances.
Over the last several months, investors have been exposed to a number of major uncertainties.
The U.K.’s vote to leave the European Union was expected to shake household and business confidence and hurt the economy and, perhaps, disrupt financial markets.
The recent election in the U.S. was generally seen as a surprise and is likely to result in significant changes in policy. President Trump’s views on trade, taxes, regulation, immigration and other issues markedly differ from those of the previous administration.
Europe, not to be left out, faces key elections in the Netherlands, Germany and France.
All of this not withstanding, consumer confidence and economic resilience are doing well.
In August, the Bank of England said it expected little economic growth in the second half of 2016. It now appears that the U.K. economy expanded approximately 2% during 2016, which would make it the fastest growing in the Group of Seven large advanced countries.
U.S. consumer confidence has risen in recent months and, according to the Conference Board’s measure, reached its highest level in December, since August 2000.
The main euro-zone-wide measure of business and consumer confidence reached its highest level in December 2016, since March 2011.
All in all, consumer confidence appears to be in good shape in the U.S., U.K. and across Europe. The nice thing about improving consumer confidence is that it has the potential to be self fulfilling, as an improving outlook encourages consumer spending and business investment.
Maybe conventional wisdom needs another look.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®