US Consumer Confidence Rebound Spotlights Global Discrepancies

(13 March 2019) Consumer confidence in the world's biggest economy, the United States, rebounded in February after a sharp drop in January, according to the University of Michigan. January’s decrease was the single sharpest drop in consumer sentiment since 2012 and was at least partially spurred by the partial US government shutdown. In February, the Federal Reserve signaled that it will hold off on further interest rate hikes and trade relations with China continued to thaw, bolstering the rebound.

• The Fed monitors the Consumer Confidence Index to help guide policy adjustments. Currently, given low inflation expectations—a component of the consumer confidence survey—it appears another interest rate is not justified.
• Consumers' expectations related to increasing unemployment, however, may fuel debate about the relationship between inflation and unemployment and any response by the Fed.

While still historically high, US consumer confidence is continuing to decline from its 15-year high in March 2018, a trend mirrored among several advanced economies. Many European economies in particular, including the UK, Sweden, Belgium, Finland, Ireland, and the Netherlands, are facing declining consumer confidence on a backdrop of heightened economic uncertainty. In contrast, some developing countries, such as Brazil, Mexico, and China, report improving in the consumer confidence levels.