What a Climbing Consumer Confidence Index Means for You

Consumer confidence is rising, and that means more spending -- and higher prices -- are likely on the way. If you've been scanning the financial headlines this week, you might have noticed that the Consumer Confidence Index climbed to 60.6 in January, up from 53.3 in December. This is far higher jump than the modest increase to 53.5 that analysts had expected.

But why is it important, and what does it mean for your wallet? Here's what you need to know:
  • Consumers are feeling better: The index, which surveys 5,000 U.S. households, measures consumers' optimism about the economy. January's reading means we're feeling better, although we still have a ways to go. (A good reading is usually considered 90 or above, and at the moment, pessimists still outnumber optimists.) "What this means, in English, is that it's no longer just egghead economists who think that better times are ahead. The average American consumer doesn't think things are so hot right now, but thinks that in a few months, not only will the recession be over, but it will no longer feel like we're in a recession," says Ken Goldstein, an economist at the Conference Board, which manages the index.
  • More spending may be on the way: When consumers are feeling confident, they tend to open their wallets more. There's no way to predict for sure that this will happen, but that's the historical trend. Goldstein says that we may really start to see this as we move into March and April. "There is at least some evidence that there is a reason to have more faith, and more confidence, which means people may spend more money. If they do that, there will need to be more stuff to spend that money on, and that means more jobs. That really starts the ball rolling in a positive direction."
  • Expect more jobs, less discounts: Unemployment remains at the top of economists' minds right now. As Goldstein says, "the top three things on minds right now are one, jobs, two, jobs, and three, jobs." So it's certainly a relief to hear that we may see some marked progress in that area as we head into the spring and summer. Hopefully that will cushion what I'm about to tell you next (and it should, because jobs are central to the health of the economy): You may start seeing less red tagging at your favorite retailers. Now that the holidays are over, Goldstein thinks the big discounts will shrink. "As we move into April and May, it's not that we will necessarily see a big spike in [retailer] sales, but sales won't come at the expense of 40% or 50% off. Retailers will not only be able to make a sale, but make money on the deal." That may be bad news for your budget, but it's good news for the economy.
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