As the chart illustrates, the Conference Board's Consumer Confidence Index is choppy from month to month, but the longer-term trend over the past few quarters is one of gradual improvement. It is interesting to note that in 2013, nearly four years into the recovery, consumer confidence levels were still down in the 60s. And by now we all know that a lack of confidence, both by consumers and businesses, is one of the defining characteristics of this recovery.
The data now indicates that consumer confidence levels have gradually improved in the past couple of years. More importantly, attitudes are now finally at a level that suggests consumers are actually “optimistic” about their current financial situation and their prospects for the future. In other words, being a little “less pessimistic” about either the current or expected economic conditions is not likely a good indicator of an overall rise in future spending. But being “optimistic” about the future might just motivate such an increase.
I think this could be an important inflection point in the data. This might mark the moment when consumers finally returned to a state of overall optimism. Now I recognize that this could change quickly, and I am hesitant to invest too much belief in measurements of something as hard to define as “confidence.” But if this trend continues to rise, then consumer spending and demand for plastics products will most likely accelerate in the coming months.
Taking a look at credit card debt
Another trend that could support this hypothesis is the recent acceleration in the growth rate for the data for consumer credit outstanding in revolving accounts. This is the data that measures the cumulative balance that consumers are carrying on their credit cards.
As I stated above, I am not comfortable with this data series either. I believe that the data is accurate, reliable, and even useful for the purposes of this discussion, but I must confess to a personal aversion to credit card debt. Put another way, this is one use of “plastic” that I cannot endorse.
My ambivalence notwithstanding, I have created a chart that illustrates the rate of change in the data measuring the outstanding totals for both revolving and nonrevolving consumer credit. Keep in mind that this chart measures the rate at which these data are growing (or contracting). Nonrevolving credit totals — the category that includes mortgages, auto loans, and student loans — contracted slightly in the recession year of 2009, but they have expanded at a robust rate every year since the recession ended.
The total for outstanding credit card debt declined sharply for three years following the recession (2009-2011), and it has expanded only modestly for the past three years (2012-2014). At the present time, the amount of total consumer credit card debt outstanding is still 15 percent below the pre-recession peak.
Clearly consumers were hesitant to increase their use of credit cards after the recession, and many chose to pay down their balances rather than purchase additional items.
But in recent months, fewer consumers chose to pay down debt levels and more consumers chose to purchase more items using credit. During the past 12 months the annual growth rate in this data has increased from just over 1 percent to more than 3 percent and rising. This rate of growth corresponds with similar growth rates in the data that measure employment levels and changes in household incomes.
I believe that these data corroborate the confidence data, and taken all together indicate that consumer spending will be a stronger contributor to overall economic growth in the second half of the year than it was in the first half of 2015.
If this proves true, then the trends in the data for the plastics industry and all of the major end-markets for plastics products will also continue to expand.