The month of February started with disruption in the stock market, pushing Consumer Confidence down from January. This market force was offset by consumers’ positive of how they will be affected by the new Tax Cuts and Jobs Act (TCJA). In our monthly survey of over 7,500 Americans, 54% state they were aware of the new tax reform legislation. Of those consumers, 11% are already planning to spend more on goods and services in 2018 as a result.
How will these factors impact consumer spending? Deborah Weinswig, Managing Director of Coresight Research, weighs in on consumer confidence, forecasted spending and the Consumer Mood Index.
Prosper Consumer Confidence: In February, 53.2% of consumers are confident or very confident in the economy compared to 59.5% in January and 50.1% in February of 2017. Small Business Owners continue to be more optimistic than the general population at 65% this month compared to 62.2% for the same period last year. “February’s drop in Prosper’s Consumer Confidence reading was likely driven by the stock market’s selloff the week Prosper fielded its monthly survey, with the S&P 500 off as much as 8.5 percent during the period. This drop along with the increased volatility of the various market indices in 2018 could dampen the wealth effect consumers enjoyed during 2017, when the S&P 500 rose 21.7 percent and the stock market turned in its least volatile performance in 30+ years. We have seen a return of volatility, or risk to the market in 2018, however, most of the macro-economic drivers remain positive as the year-over-year comparisons attest to. For consumers generally (18+ adults), confidence increased 6.3 percent in February 2018 versus a year ago driven by increased confidence among the more modest household income demographic (under $50K). Higher earners ($50K+ households) are more confident than lower income households, at 58% versus 47%, but it is among the higher income cohort that confidence dropped 11.4 percent month-over-month in February” Weinswig stated.
Prosper Consumer Spending Forecast: the February Consumer Spending Forecast of 85.22 is up from the January reading of 81.45 and up 3.1% from last year’s index of 82.64. “Consumer spending intent is promising for the next few months supported by improving incomes and reduced unemployment and the just implemented 2018 Tax Cuts and Jobs Act that began to show up in consumers’ take home pay in February. According the Prosper’s survey, 11% of those aware of the 2018 tax law plan to spend the increase, benefitting home related categories (repair, furniture and home purchases) as well as computer and jewelry purchases. The majority of those surveyed and aware of the plan do not plan to increase spending. Vacation travel is a priority for both tax savers and tax spenders. With 46% of survey respondents unaware of the new tax code, Coresight Research anticipates another approximate 10% to increase spending, further boosting the outlook for these large purchase categories” Weinswig opined.
Prosper Impulsivity Score: The February reading of 2.89 the is up slightly from last month’s reading of 2.88 and last year’s reading of 2.88). Viewed over time, the score shows the consumer’s point of view of an improving economy.
Consumer Mood Index: At 106.2 overall Consumer Mood is up slightly from last month (106.1) and up from last year (106.1). The index diverges; however, when the Millennials are compared to the Boomers. Boomer Mood is trending up at 112.4 while Millennial Mood is trending down to 99.5. Weinswig elaborated, “An improving mood bodes well for consumer spending. Coresight Research expects Boomers to spend on experiential products and services such as beauty, exercise and spa treatments, entertainment, restaurants and travel. Purchases that enhance lifestyle such as smart connected homes and restorative beauty/wellness treatments are top of mind with affluent Boomers who continues to drive a significant portion of US discretionary spending. Retailers and brands should continue to market to this huge cohort who value service and quality over discounts and promotional pricing.”
Prosper Auto Outlook: The automotive outlook for the next 90 days is up versus last month and on up from February of last year. Actual Auto and Light Truck sales confirm our January Auto Outlook which predicted a down month for February.
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