Chart of the Week: Strong US Consumer Confidence Indicates Continued Growth into early 2022

December 24, 2021

US consumer confidence rose in December by more than expected despite of growing concerns over inflationary pressures and the emergence of the Omicron variant. The Conference Board Consumer Confidence Index increased to 115.8 in December from the revised 111.9 reading in November. This cements a strong finish for the US consumer confidence, suggesting that households in US are ready to adapt with the COVID-19 virus and its variants.

The strong data shows that consumers in US remain optimistic despite the reintroduction of COVID-related restrictions in some parts of the country as the Omicron variant spreads. Part of this is probably due to the new studies that suggest the Omicron variant is less likely to result in hospitalisation and appears milder than earlier strains of the virus. Aside from that, continued improvement in the labour market has also helped to improve sentiment. Unemployment rate has come down to the 4.2% level recently as compared to 14.8% in the earliest days of the pandemic back in April 2020. Concerns over the rising inflation in the coming year has also tapered off after it hit a 13-year high last month.

The Conference Board Expectations Index also increased to a 5-month high of 96.9 in December, suggesting that consumers are more optimistic of the outlook going forward. Based on the data, consumers also said that they were more likely to buy cars, homes and household appliances.

Personally, I think this is a good sign as it points to continued growth for the first half of 2022. Expectations about short-term growth prospects improved as the strong consumer confidence finish this year sets the stage for continued growth into early 2022. It is also worth noting that corporate profits in the US have already rose 3.4% from its previous quarter to USD2.52 trillion in the third quarter of 2021. It is a new record high quarterly profit recorded in the US. While some of the strong profit recorded in the quarter was driven by tax cuts and government assistance, it also shows that businesses have adapted to the uncertainties due to the pandemic.

The strong consumer confidence could help to maintain the growth momentum for businesses going into 2022. However, some of the profit margin could be squeezed due to the elevated raw material prices. Logistics and supply chain bottlenecks will also delay some of the earnings into the later part of 2022 but overall, a sustained growth in businesses is good news for the stock market. Downside risks remain with both the rising cases of COVID-19 related to the Omicron variant and the faster than expected rate hike by the US Federal Reserve.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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