Recently, the Conference Board Consumer Confidence Index showed a nearly 18-year high of 133.4 in August 2018. This means that the average consumer has a positive outlook for the business and labor market in the coming weeks and months.
And that generally translates to strong consumer spending.
“I see the high consumer confidence index as increased revenue at our shop," says Jesse Yuvali, owner of Jesses Garage European Auto Repair, which specializes in servicing and repairing exotic European automobile models. “When consumer confidence is high, my business is booming."
—Bill Bender, owner, Boulder Tire
Yuvali has found that many of his customers are executives, business owners and specialized professionals, who tend to be top earners and whose incomes are often dependent on the strength of the stock market.
“When the market is strong as it is now, their income is strong, and they spend more freely," he says.
For Bill Bender, owner of Boulder Tire in Colorado, a high local consumer confidence index, along with the national upward trend, has led to a significant uptick in his business.
“Here locally, we've been booming for several consistent years," says Bender.
According to Bender, the upswing originates from various changes to the local economy, including the influx of large tech firms because of fracking, and increased business surrounding the legalization of cannabis in Colorado.
“Because of the influx of residents, my businesses have seen an increase in customers," says Bender. “More people means more tires to sell."
Taking Advantage of the High Consumer Confidence Index
With the high consumer confidence index, it makes sense to make the most of the situation.
Yuvali has found that now is a good time to sell some of the extras that you might not be able to offload when the consumer confidence index is lower.
“I've had good luck upselling or offering service options that might have once been viewed as superfluous, but are now considered feasible," he says. “This could be a repair a customer has been holding off on or something extra like a detail or upgrade."
Yuvali has noticed that increased confidence has also resulted in an overall positive atmosphere.
“In general, people just seem happier, so I'd encourage business owners to ride the wave as much as possible," he says. "This includes keeping spirits up internally, because employees will mirror this optimism back to customers."
Bender found that the increased consumer confidence gave him a good opportunity to expand his business.
“Expansion when the consumer confidence index is high isn't right for every company, but it can be ideal, depending on your business and circumstances," he says. “Over the last year, I purchased an auto repair shop to complement my tire store."
Bear Market Often Follows High Consumer Confidence
The Consumer Confidence Index slides up and down, depending on a variety of factors, including the state of the stock market.
Peter Kendall is co-editor of The Elliott Wave Financial Forecast, published by Elliott Wave International, an independent technical analysis firm. According to Kendall, historical instances of high consumer confidence indexes have been followed by bear markets and resulting slowdowns in the economy.
“To understand what the current high consumer confidence index [could] mean, we need only look back at what happened prior times it reached such high levels," says Kendall. “The all-time high of 144 came in January 2000, which marked the start of a bear market. The economy followed the stock market down about a year later, as it usually does."
Back in October 1968, the consumer confidence index hit 142.
“This was a few weeks ahead of another major peak in the Dow Industrials," says Kendall, co-author of The Mania Chronicles: A Real-Time Account of the Great Financial Bubble. “There again, about a year later, the economy joined the stock market in a recession."
Plan Ahead for a Dip in the Consumer Confidence Index
Knowing this propensity for a dip in the economy to follow high consumer confidence, Kendall suggests that investors sell now, rather than invest. He feels business owners should also prepare by reducing their exposure to debt and slack demand.
“Most business owners understand the ebb and flow nature of business, so they definitely shouldn't be banking on this high," Yuvali agrees. "The market and consumer confidence will certainly lower. With that they'll feel the change."
The time to invest may have passed, but if you're strategic, you can still benefit from the current consumer confidence index spike, believes Yuvali.
“Now might not be the time for companies to invest heavily in long-term debt that is reliant on customer income to pay it off, but you can still take advantage of the uptick in consumer confidence," he says, before giving an example.
“For my industry specifically, I'd avoid installing a new bay with a new hydraulic lift, but instead give more hours to my crew to service customers," he says. “I can always adjust hours and get creative later, but a new bay or lift has to be repaid."
If you're keeping an eye on expenses and focusing on the long-term with careful selection of products and services, you probably don't have to worry about a dip in the consumer confidence index, adds Bender.
“I'm not concerned, because my products and services come in a variety of pricing levels and are utility, rather than luxury items," he says. “If your tire pops on the highway now or two years from now when the market might be weaker, you must fix that tire if you want to use your vehicle."
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