In January, The Conference Board’s consumer confidence index surged to 102.9 from 93.1 a month ago, way above expectations for a reading of 95.5.
This is also the highest reading for that index since August 2007 (!).
Part of the reason why consumers are so confident — as we’ve heard over and over again — is that falling oil prices lead to lower gas prices which are great for consumers.
This is not to ignore the durable goods report, which wasn’t ideal — durable goods orders were a huge miss, declining 3.4% against expectations for a 0.3% increase.
And although falling oil prices might have partially contributed to the lower durable goods number (when energy prices are low, energy companies stop investing in the structures they need), they make up a really small part of capex — so we can’t really blame the bad numbers on oil prices.
Additionally, the important thing here is that durable goods make up a way smaller part of the GDP than consumers do.
Pantheon’s Ian Shepherdson summed this up nicely in his note after the reports:
“It’s hard to imagine a better textbook illustration of the different effects of a plunge in oil prices than this report and the drop in durable goods orders reported earlier. Consumers love falling gas prices more than just about anything else, but the oil business hates them, and is slashing its spending in response. The key point is that consumption is nearly 70% of the economy, whereas oil companies’ capex, equipment and structures, is just over 1%.”
Shepherdson also included the following chart, which shows that the expectations index is consistent with a clear acceleration in consumption over the next few months.
So tl;dr — maybe everyone’s just overreacting to a blip of bad news, just like we all overreacted to the snowstorm.