In early August, the University of Michigan Index of Consumer Sentiment crashed to a ten-year-low. Not surprising as consumers were weighed down by the Covid surge, rising concern over possible inflation, the fragility of our supply chain, and the painful images of our troops leaving Afghanistan. It was a depressing month.
In late August, the government’s Consumer Confidence Index also fell but only to a six-month-low. While that is still not good, it was better than the earlier data. During the month, consumers began to realize how strong the labor market has become. Businesses cannot hire enough people, which is aggravating our supply chain problems. Two years ago, businesses claimed a minimum hourly wage of $15 would destroy them. Now, the labor market is so tight that wages are rising quickly. Walmart just announced a minimum wage of $15 hourly. I saw a fast-food restaurant in Maine offering $25. Personal income rose 1.1% last month, and the child tax credit is easing the burden of children. The number of people saying jobs are “plentiful” has risen to a 20-year-high. In fact, 2.7% of employed workers quit their jobs last month, which is a good economic indicator, because workers seldom quit unless jobs are plentiful. This is a higher rate than either of the two previous expansions. In addition, there was a surprising improvement in our manufacturing, despite the continuing supply chain problems.
Yes, the consumer is not happy but his mood is improving. Consumer confidence can be lost quickly and usually recovers slowly. The good news is that it is already recovering.