Consumer Confidence Index Reaches Highest Level Since April. Is the Economy About to Rebound Even More?

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  • There's been talk of an economic slump for months on end.
  • In spite of that, consumer confidence just took a turn for the more positive.

Now that's some happy news.

If you're tired of reading warning after warning about an impending recession, that's understandable. Experts have been sounding alarms for months about an economic downturn. And so it's hard to feel good about the economy in light of that.

But new data reveals that consumers actually have a pretty positive outlook on the economy these days. In fact, the Conference Board's consumer confidence index came in at 108.3 this month, which is a notable jump from 101.4 in November. It's also the highest reading for the index since April.

Consumers are feeling better on the whole

It's easy to see why consumers might be feeling better about the state of the economy these days than they were a few months ago. First, inflation levels have been cooling. To be clear, living costs are still higher than normal, and many people are being forced to rack up higher credit card balances to cover their expenses. But we're not looking at the same level of inflation as we experienced back during the summer.

Also, gas prices have come down a lot since peaking mid-year. That, too, could be lending to more consumer confidence.

And finally, the national unemployment rate is at almost its lowest level in 20 years. Not only that, but the gig economy is booming. And despite a recent round of layoffs from major tech companies, there are still plenty of jobs to be had.

Are recession warnings overblown?

The main reason economists have been warning about a recession doesn't have so much to do with the current state of the economy. Rather, it's based on fears (grounded ones) that the Federal Reserve's interest rate policies will fuel an economic downturn.

The Fed has been hiking up interest rates in an effort to slow the pace of inflation. That has, in turn, made it more expensive for consumers to borrow in just about any category imaginable, from auto loans to mortgage loans. If consumers start to cut back on spending to a large degree as a result of higher borrowing costs, it could be enough to bring about a recession.

As such, the warnings we've been hearing are legitimate. But whether a recession will actually hit in 2023 is yet to be determined.

It's possible that the Fed's interest rate hikes will only result in a moderate pullback in spending, not necessarily a full-fledged one. And in that case, we could be spared a recession.

Plus, when consumer sentiment is positive, that tends to drive people to continue spending. And since it's clear that consumers are feeling pretty good about the state of the economy, that alone could be enough to prevent a downturn in the new year.

Now without a crystal ball, there's no way to know what the next 12 months have in store. But it's also important to keep recession warnings in perspective. They're meant to encourage people to boost their savings balances -- not to scare them for the fun of it. And so while we could still see things take a turn for the worse in 2023, hopefully, all those warnings will have achieved the very important purpose of urging consumers to pad their emergency funds just in case.

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