The June round of economic confidence surveys on the US economy is basically done and the results show optimism is still running high. I previously remarked that the initial surge may have been overstated or “too far, too fast” – but that it was probably in the right direction. I remain of that view, and would point out that the signal is basically the same whether it’s the consumer, small business, manufacturing, services. One thought that comes to mind is “animal spirits” – people tend to spend more, invest more, start businesses, change jobs, etc when they are confident on the economy and outlook, so it does have a self-reinforcing effect.
Of course the logical progression of better confidence and economic optimism - and the real activity it reflects and portends - is tighter capacity (and ultimately inflation). And we are seeing that show up clearly in the surveys again, with small businesses finding it hard to fill jobs, and consumers finding it easy to get jobs. So this says onwards and upwards with Fed rate hikes and balance sheet normalization as the monetary policy tightening cycle gets well underway in the USA.
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There is generally broad agreement across the surveys, and after the near-miss recession scare in 2016 economic optimism shows significant confidence, perhaps a sign of animal spirits finally starting to stir after a long recovery.
The improvement in confidence is reflected in real activity, and this chart is a good example. It shows an increasingly tight labor market as consumers find it easy to get jobs and small businesses find it difficult to fill jobs. This is an important chart for the Fed.
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Article by Callum Thomas, Top Down Charts