Consumers feel over 9% more confident about their financial outlook this month than they did one year ago, according to the latest WalletHub Economic Index.

The WalletHub Economic Index is based on a monthly survey that evaluates economic prospects based on 10 components of consumer sentiment. These components revolve around how people feel about their finances, purchasing plans, and employment opportunities.

Key Stats – Positive Outlook

  • Real estate popularity rises: Home-buying interest among consumers increased by over 27% in February 2024 compared to last year, while hitting the second-highest level recorded since December 2020, tailing just October 2023.
  • Increasing interest in auto purchases: The share of consumers who expect to buy a car in the next six months is almost 16% higher in February 2024 compared to last year.
  • Large purchases are a priority: In February 2024, consumers’ likelihood of making a large purchase in the next six months is over 15% higher than it was last year while topping all the values recorded since December 2020.
  • Increase in optimism: In February 2024, consumers’ optimism about whether their finances will improve in the next six months is 5% higher than it was last year.
  • Stronger sense of job security: People’s confidence in having a job in the next six months is 5% higher in February 2024 compared to last year.

Key Stats – Negative Outlook

  • Fewer new employment opportunities: The share of consumers who feel new employment opportunities are “abundant” is lower (-6.2%) in February 2024 compared to last year.

Why Consumer Confidence Is Up

“We have been hearing that we are heading for a recession for over a year now and it just has not happened. Consumer confidence is up because we continue to see new highs in the stock market while at the same time, inflation is cooling. Gas prices are down and for the goods that have not seen a price reduction, we are in many respects, getting used to paying the prices we are paying. So in many respects, consumer confidence is high because we have been emotionally anchored on a recession as everyone kept telling us to brace for it and it just has not happened. It is as if the weather forecast has been calling for a hurricane for weeks and not only did it not come your way, but the skies are clearing and the sun is out, and you are heading for the beach,” said Dr. Charles Chaffin, co-founder, Psychology of Financial Planning programs; Professor of Practice, Iowa State University.

“Confidence levels are determined by consumers’ information about the current economic situation as well as their expectations of future economic conditions. Both are influenced by economic data and reports; recently those have trended in a positive direction. The stock market is hitting new highs, and inflation, while still elevated from where the Federal Reserve would like it to be, is sharply down while unemployment rates remain low. Although the economic news is not universally positive—for example, interest rates remain elevated, and many grocery items have increased in price faster than the overall inflation rate—there is enough in the ‘positive economic news’ column that consumers feel more confident in the economy than they did previously,” said Meagan McCollum, associate professor; director of Real Estate programs, University of Tulsa.

Steps Individuals Can Take to Protect Their Finances

“Eventually, the clouds will come! Consumers need to continue to keep a rainy-day fund available, which most advisors say is 6-8 months of living expenses. They need to watch out for that credit card debt, talk to an advisor about their short- and long-term goals, and ensure that their saving and investing is in line to meet those goals,” Chaffin said.

“Individuals’ best protection for their finances is knowledge, having up-to-date information about all elements of your financial life, such as your account balances, investments, income, expenses, and savings is key. Aim to sit down periodically to review all your income and expenses to make sure you are still on track to hit your financial goals. Otherwise, you might find you are underinvesting in your retirement because you do not adjust your contributions when you receive a raise or not realize an expense you may have on autopay like a cell phone bill or a streaming subscription has increased in price,” McCollum said.

Source: WalletHub