US consumers feel a Trump bump as confidence rises to 12-year high
US consumers have greeted the arrival of Donald Trump as President with glee, as confidence soared in January to its highest level in 12 years, according to a closely watched survey.
Optimism for the prospects of the world’s largest economy has risen by nine per cent year on year, according to the survey by the University of Michigan.
Positive perceptions of current economic conditions moderated over the course of the month, but were still 4.6 per cent higher than the same point in 2015.
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Trump campaigned on a platform promising strong four per cent growth in the US economy. He also claims he will return jobs in industry that have been moved abroad to take advantage of higher labour costs.
Richard Curtin, chief economist at the University of Michigan’s Surveys of Consumers, said: “The post-election surge in confidence was driven by a more optimistic outlook for the economy and job growth during the year ahead as well as more favorable economic prospects over the next five years.”
The policies include a massive fiscal stimulus of tax cuts allied with infrastructure spending funded by borrowing, although any further detail on the size or mechanism of the stimulus has yet to emerge.
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Higher growth and higher inflation make it more likely the Federal Reserve will raise interest rates, as it aims to reduce the supply of money in the economy and thereby control prices. This in turn brings consumer borrowing decisions forward to take advantage of lower current interest rates.
Curtin said: “Consumers have become more convinced that the stronger economy would finally prompt the Fed to increase interest rates at a quicker pace, which caused one-in-five consumers to favor borrowing-in-advance of anticipated increases in mortgage rates, the highest level in more than twenty years.”