Happy Days are here again, according to American consumers. The Consumer Conference Board has this month's Consumer Confidence level at 90.9, up from 86.4 last month and the highest level since October 2007. That means Americans are more bullish on the economy now than since before the Great Recession of 2008. Analysts believe the high consumer numbers reflect the generally positive performance of the stock market, which continues to hover at or near record highs, along with a steady decline in the unemployment rate over the past few months. This week, the Commerce Department added to the upbeat mood, reporting the Gross Domestic Product grew by 4% in the second quarter, after it contracted in the first quarter.
But does the actual economy match what consumers are feeling? Not necessarily, according to KTRH Money Man Pat Shinn, from Houston's Heritage Asset Advisors. He says consumer confidence is a "lagging indicator," meaning it tends to reflect what's already happened. "This is not a leading indicator, this is in no way predictive of what happens down the road," says Shinn. In fact, he notes that sometimes positive consumer confidence can even signal a downturn in the market. "When everyone is feeling extremely optimistic, stocks typically don't do so well over the next 12 months," he tells KTRH. "And the reason why is they've already done well."
Shinn doesn't foresee any "bubble burst" coming in the near future though, based on the Federal Reserve Board's current policy. "They are not worried about a bubble, they are basically trying to do everything they can to stimulate the market, bring the unemployment rate down, etc," he says. Indeed, the Fed announced this week it will keep interest rates near zero, while continuing to taper down its bond-buying stimulus program. That program is set to end in October. Overall, Shinn says Fed policy will ultimately dictate market performance over factors like consumer confidence or how long the market has been growing. "Bull markets do not die of old age, they basically die when the Federal Reserve takes away the punch bowl."