US Consumer Spending Highest Since 2008 As Economic Confidence Hits Record High: Gallup

Perhaps it is the last hurrah of the Trump post-election euphoria  but according to Gallup there were two notable development in February.

First, Americans' daily self-reports of spending climbed to an average of $101 in February. This, Gallup reports, was the highest average for the month of February since 2008, when spending averaged $106. The latest monthly average is up $13 from January's figure, but still lower than December's holiday-influenced $105.

Gallup notes that this is the seventh daily spending average of $100 or more that Gallup has recorded for any month over nine years of tracking Americans' spending reports, and the only one in February since 2008. During that year - but before the global financial crisis in the fall - Americans' monthly average spending exceeded $100 four times.

What makes the Gallup report even more surprising were previous reports that due to a delay in the payment of Tax refunds by the US Treasury, spending would be muted in the past month. The latest data not only refutes this assumption but suggests that the outcome was just the opposite of what many had expected.

Additionally, Gallup observes that since 2008, Americans' spending in the month of February has generally been similar to their January spending, though it is common to see a slight increase in February after January's seasonal, post-holiday drop. But the January-to-February increase in 2017 is larger than usual, with this year's $13 bump outpacing the previous record $9 increases in 2008 and 2014.

That said, the spending spree was not uniform and was mostly thanks to wealthier consumers.  The increase in spending was slight -- to $73 from $70 in January -- among Americans living in households that earn less than $90,000 annually. The increase among higher earners was much larger. Consumers in households earning $90,000 or more annually spent significantly more in February than in January -- $168 versus $142. This $26 month-to-month increase is one of the largest Gallup has found for this group in its nine years of tracking.

U.S. Consumer Spending, by Annual Household Income

Gallup's bottom line: Americans' views of the U.S. economy have improved markedly since Donald Trump's election in November; and with stock market averages reaching new highs this year, they may be in a position to feel more comfortable than they have been in loosening their purse strings.

Yet while there is a distinct risk that disappointment with Trump policies could result in a sharp slowdown, while a market slump would lead to far lower spending, for now there is no wuch concern as confirm by the second notable Gallup observation, namely that economic confidence in the latest week hit an all time high: "Many Americans either gained or regained economic optimism last week, as Gallup's U.S. Economic Confidence Index soared seven points to hit +16. This marks the highest weekly average in Gallup's nine-year trend. The index has recovered the ground it lost over the week of Jan. 30-Feb. 5, when it fell from the previous record high of +14 to +8 and languished at that lower level for the next three weeks."

One possible catalyst for the latest surge in confidence is Trump's February 28 address to Congress.

Last week was an eventful one for the U.S. economy. President Donald Trump gave his maiden address to Congress on Feb. 28, emphasizing his key economic policy goals such as lowering the corporate tax rate. Those who watched the speech were generally pleased with it, and traders on Wall Street were decidedly upbeat: Stock markets rallied on Wednesday, and the Dow Jones industrial average closed above 21,000 for the first time in its history. Federal Reserve Board Chair Janet Yellen also spoke favorably of current economic conditions in a speech on Friday.

Gallup admits that it is is impossible to know which of these events played the most important role in boosting Americans' confidence last week, "though it seems unlikely that Yellen's remarks influenced the public much given her low name recognition." Trump, meanwhile, commanded a large national audience, and his speech likely helped spark the stock market's record-setting performance the next day.

And here, another interesting twist: while one would expect Republican confidence to soar, it was Democrats who showed the largest improvement in economic confidence from Wednesday to Sunday of last week, the period after Trump's speech and the stock market rally. Over the seven days leading up these two events (Feb. 22-28), Democrats registered an index score of -7; for the five-day period of March 1-5, their score rose to 0. Republicans, on the other hand, showed modest gains; their index score rose from +45 to +48 in the same time frame.

As Democrats, by and large, disapprove of Trump's job performance as president, this would seem to suggest that other factors, such as the stock market rally, may have helped shape economic attitudes last week.

Breaking out confidence between current condition and the future outlook shows another interesting divergence: in February, one-third of U.S. adults (33%) described economic conditions as "excellent" or "good," while 20% rated them as "poor." This resulted in a current conditions score of +13 for the month -- a three-point increase from January's score and a nine-year high for this component.

Meanwhile, opinions about the future trajectory of the economy soured last month. Less than half of U.S. adults (48%) said economic conditions were "getting better," while nearly as many (45%) said they were getting worse -- yielding a score of +3 for the economic outlook component. In January, the economic outlook component averaged +11.

Gallup U.S. Economic Confidence Index Components

Gallup's conclusion:

Though confidence in the economy appeared to stall in the month of February after rising steadily throughout the past three months, it may have gained a second wind last week after Trump's speech to Congress and the stock market's strong performance.

Our take: markets continue to soar on consumer confidence, while consumer confidence - reportedly - is rising on all time highs in the stock market. This circular feedback loop, which is self-referential and illogical, works for time until eventually there is a snap (just like with the stock with the same ticker) and with the S&P now at the upper range of all Wall Street estimates, and even established organizations like the OECD warning that the market is "disconnected" from reality, the surge in confidence, and spending, may be about to come to an abrupt end, at the worst possible time for the Trump administration.