According to this month’s University of Michigan’s Survey of Consumers report, Consumers for the fourth consecutive month have improved their view of their finances and the economy. It’s been a rough road for consumers these past four years. The pandemic and government restrictions wiped out all prior consumer enthusiasm about their future which resulted in the index plummeting over 30% from February’s 2020 high of 101 points down over 30% to 71.8 by April 2020.

Improving recent consumer sentiment is good news going into the holiday season as happy confident consumers tend to spend more on gifts during the holidays.  Strong holiday sales in malls and online lead to positive earnings reports in January.  Both events can provide an effective tailwind for the stock market in the first quarter of 2025.

However, the last 24 years have been a challenging time for consumers with boom-and-bust cycles.  The dot.com crash in 2000 – 2003 caused 10,000 companies to close with massive layoffs that sent the confidence index to seven-year lows.  In March 2003, the stock market and economy began its moderate recovery for the following five years with economic growth and rising home and stock prices.  Unfortunately, the housing market as we now know was artificially supplemented for years with faulty mortgage underwriting that resulted in the largest number of mortgage foreclosures in history.  By late 2007 the consumer confidence index declined 20% which dropped further with the unraveling of the housing market.  The index dropped to a historic low of 55.3 by November 2008.  Again, in the month of March this time 2009, the stock market and economy started a slow and weak rebound that only lasted a few years.  The Obama administration couldn’t revive the economy in the first couple of years after the Great Recession which was plagued with high unemployment and sub 1.5% GDP annual economic growth.  By August 2011, the unemployment rate was 9% and nearly 14 million people were out of work.  CNN reported on August 8, 2011, that about 13.9 million people were unemployed and 44.4% of them had been out of work for more than six months. 

Investors were not impressed with the status of the economy and their ambivalence was evident with a volatile S&P 500 during 2010 and 2011.

However, in 2012 the business of America started to pick up momentum with companies hiring people to meet increasing demand that further propelled the economic growth.  More people working resulted in more consumer spending and the economic wheels started turning faster. Investors were forced into stocks with near 0% interest bank rates and weak bond markets.  A mantra of NBS (Nothing But Stocks) resonated on wall street due to limited investment alternatives that help propel stock prices higher. 

Economic activity continued into the Trump administration in 2016. The stock market rally was temporarily interrupted on October 3, 2018, by Jerome Powell, Chairman of the Federal Reserve, with his comments on the Federal Open Market Committee’s interest to start raising rates.  The Feds did raise their discount rate over the next two months but at a slower pace than feared and by mid-2019 began to lower the rates.  Investors breathed a sigh of relief and pushed the S&P 500 in 2019 to all-time highs.  The bond market also rallied in 2019 with the decline in interest rates making 2019 a stellar year for both growth and income investors. 

Needless to say, by 2019 the Consumer Confidence Index was above levels not seen in the past 20 years. Economic growth finally broke above the previous decade of sub-2 % GDP growth and the stock market was also hitting record highs. 

The reason for the 20-year history leading up to the pandemic is to provide a point of comparison to the level of consumer confidence today vs prior to the pandemic.  The Consumer Confidence index thankfully recovered after the dramatic drop in 2020.  However, based on the index Americans are very unsure of their future finances and the economy compared to prior to the pandemic.  October’s Consumer Confidence index is well below levels reached just earlier this year or when confidence briefly rebounded in 2021 but also well below levels prior to 2020.

Below is the chart of the 24-year history of the Consumer Confidence index.  As you can see from the chart, Americans today are far less optimistic about their personal finances and the future of this economy than during the growth years following the 2000 -2003 dot.com bust and the 2008 Great Recession.

What Does This Mean to Me?

It is interesting how glum Americans are today.  I understand in 2007 when unemployment was soaring and the housing market was on the verge of an epic collapse that consumer confidence was plummeting.  But why are people so pessimistic now with more Americans working in the history of this country, unemployment at the lowest levels not seen since WWII, over 8 million unfilled jobs, and the S&P 500 is on its way for its second consecutive year of 20%+ annual gain? 

While the S&P 500 has rallied 80.54% since January 1, 2020, the similar US Index of Consumer Sentiment has dropped 29% during this same period. 

As the stock market is achieving record gains and the economy has rebounded, Americans have gotten more discouraged. 

Why the disconnect?  The same people reporting their fears are by odds some of the employed millions, watching their 401k accounts appreciating, and enjoying sub 4% fixed-rate mortgages while their house values continue to increase every year.  

I can only attribute this major void of one’s perception to reality as the source of their information.  For years the media has pounded their negative messaging that included a pending recession that never transpired.  Along with the misguided information are relentless attacks on the “rich” (aka you and me) who are evidently capitalizing on our defenseless and vulnerability society.  I have traveled to 3rd world countries and seen how corrupt governments treat their citizens who are truly without options.  Americans are not weak and are the reason why this country’s economy rebounded faster and stronger than any other nation on Earth.  America recovered because of the people and not because of government handouts.  One could argue that the economic recovery was despite trillions of debt-funded government subsidies that may ultimately stifle the continued momentum of the economy.

Nonetheless, I don’t know why so many people are discouraged.  What I do know is they are missing a terrific economic recovery and the stock market rally.  Maybe it’s best we don’t say anything and reap the benefits while they continue listening to media outlets.