Confidence is Bursting at the Seams

By Bolton February 28th, 2024

By Dr. Anirban Basu, Sage Policy Group

Look carefully enough, one can spot happiness. Often, happiness is embodied in the laughter of a child, in the demeanor of a family pet instinctively aware that it is about to go for a walk or to be fed, glances between newly minted moms and dads, and on Taylor Swift’s face (always smiling – also Travis Kelce).

Lately, happiness appears to be on an upward trajectory as stock prices rise and fears of recession ebb. In short, confidence is on the rise. For instance, the Conference Board’s Measure of CEO confidence improved to 53 during 2024’s initial quarter. That reading is up from 46 during 2023’s final quarter. Any reading above 50 signifies that large company CEOs have become optimistic regarding what is ahead for the economy. According to the Conference Board, this is the first time optimism has prevailed in two years.

Not coincidentally, consumer confidence is also at a two-year high. In January, the Conference Board’s Consumer Confidence Index rose to 114.8, the highest reading since December 2021. A combination of factors is at work, including slower inflation, anticipation of lower borrowing costs going forward, and favorable employment conditions. Arguably, American workers have never enjoyed the level of job security they presently enjoy. At the end of last year, there were still 9 million available, unfilled jobs in the U.S. even though with each passing month the nation sets a record for total employment. Unemployment has been below 4% for about two years.

Homebuilder confidence is also on the rise despite a recent uptick in mortgage rates (above 7% in mid-February according to the Mortgage Bankers Association). In February, the National Association of Home Builders’ Housing Market Index rose 4 points to 48, the third consecutive increase in builder confidence and its most elevated level since August 2023.

Among the only groups that seem to be losing confidence are small business operators. The National Federation of Independent Business’ Small Business Optimism Index fell two points in January to a reading just below 90, “marking the 25th consecutive month below the 50-year average of 98.” There may be many factors at work, including rapidly rising labor costs, reemerging supply chain issues, possibly related to Red Sea and Panama Canal dynamics, and the growing might of larger firms, which among other things benefit from their ability to purchase expensive emerging technologies, thereby expanding their productivity and competitiveness.

Partly Sunny with a Chance of Rain

Despite small business concerns, the general mood among various economic actors is improving. The question now becomes whether such optimism is justified. After all, there have been some developments that might cause one to ponder whether recession risks are particularly low. Recent inflation data (CPI and PPI) came in hotter than anticipated, indicating greater financial challenges for consumers, all things being equal, and implying that interest rates will stay higher for longer as the Federal Reserve continues to keep the brakes on financial conditions. This will give higher interest rates more time to chip away at current economic momentum.

There are even indications that the labor market is weakening. While headline numbers characterizing monthly job growth, unemployment rates, and initial unemployment claims remain extremely positive, layoff activity is on the rise. According to The Challenger Report, job cuts announced by US-based companies surged 136 percent to 82,300 to begin 2024, up from 34,800 cuts the month prior. Given intense geopolitics and impending high-stakes elections, it will be interesting to see whether the latest burst of confidence will last or whether many of us are in for a dose of disappointment.