U.S. consumer confidence has surged, reaching its highest point in 33 years.

Currently, two-thirds of U.S. consumers reveal that they are poised to ramp up their spending.

This uptick is attributed to a stable job market, a reduction in inflation, and the anticipation of lower interest rates.

A study by Michigan State University revealed on February 19th, that U.S. consumer sentiment has soared by 13%.

The Wall Street Journal (WSJ) adds that, considering the notable increase in December of last year, consumer sentiment has skyrocketed by 29% over two months, the most significant rise since 1991.

This boost in consumer confidence spans across all ages, incomes, and regions, indicating broad-based improvement.

Joane Shu, who conducts the consumer confidence survey at Michigan State University, predicts that this surge will inject positive energy into the U.S. economy.

Despite previous decline in consumer sentiment due to persistent inflation and the pandemic, along with solid job growth, consumers now feel reassured by the slowing inflation and signs from the Federal Reserve System (F.R.S.) hinting at interest rate cuts, freeing them from the burden of high rates.

Even with the rapid increase, there’s no immediate concern about the economy overheating.

Consumer sentiment remains 20% below pre-pandemic levels, akin to the recovery phase post-recession.

Several factors contribute to this resurgence.

Employment growth is strong, with unemployment rates hitting record lows, while inflation is gradually stabilizing.

Additionally, mortgage interest rates have been in decline after peaking in October last year, and the S&P 500 index has reached new highs.

Nill Duta from Renaissance Macro Research notes, “These indicators are going backwards, making consumer confidence rebound”, also emphasizing, “While this is happening, the Labor market is flowing quite well”.

Michigan State University's research also highlights a shift in inflation expectations, dropping from 4.5% in November of the previous year to 2.9%, the lowest since December 2020.

Despite the lowest real estate transactions in 28 years, consumer engagement in the housing market is improving, with the Federal National Mortgage Association noting a 10% increase in housing sentiment compared to last year.

However, economists remain cautious and aware of potential vulnerabilities.

The gradual rise in interest rates by the Federal Reserve has historically impacted the U.S. economy in waves, potentially leading to abrupt economic slowdown.

Jeremy Schwartz, senior U.S. economist at Nomura, expressed concern over the effects on consumer sentiment should unemployment rise.

While financial markets anticipate the Federal Reserve’s interest rate reductions, the Federal Reserve itself projects these cuts to commence in the latter half of the year.

While U.S. consumer sentiment advances, connected markets in Asia are also impacted .

For example, South Korea is on the path of recovery, revealing inflation expectations at only 3%, the lowest since 1 year and 10 months.

Also, the Korean consumer sentiment rate has increased by 1.9 points, reaching 100 points, meaning consumer sentiment can be viewed as optimistic compared to 20 years ago.

The Bank of Korea found that the interest rate downturn announced by the F.R.S. certainly had an impact on Korea’s market and Korean consumer sentiment.

Given that the economic stability of consumers in countries including Korea and the U.S. remains uncertain when looking at the global clock, authorities must remain vigilant and be well-prepared for any potential economic downturn.

Daniel Yejoon Ko

Grade 10

Cheongsim International School