Confidence is the key

The measure of CEO Confidence

 The Conference Board Measure of CEO Confidence at its all-time high is implying the faster than expected recovery, near-record profit margins, and expectations for above-trend GDP growth. The indicator suggests CEOs are optimistic about the future and anticipate better economic conditions ahead. Such optimism is crucial for capital spending. Spending that allows businesses to boost productivity.

Businesses around the globe have started to spend the money they borrowed during the pandemic leading to a surge in takeovers, buybacks, and capital expenditure.

The companies are starting to invest more to expand capacity. Last year, investments in software & digitization led the spending cycle. Moving forward, other sectors are expected to join the party. The Manufacturing Purchasing Managers' Index is telling a similar story. (See chart below)

United States Manufacturing PMI (Source: Trading Economics)

The measure of Consumer Confidence

Consumers’ assessment of current conditions has improved implying economic growth has strengthened further in the 2nd quarter of 2021. The reason behind the recovery in consumer confidence is the expectation that business conditions will continue to improve in 2021. The conference board notes that consumers had a more favorable view of current business conditions and the overall labor market.

The inflation expectations seem to have a limited impact on consumer confidence and their spending plans. Consumers planning to purchase homes, cars and planning to go on a vacation all rose, a sign that consumer spending will continue to support economic growth in the short term.

The consumers feel good about the economic landscape and they represent 70% of the US economy. This should serve as a tailwind for positive business activity in the months ahead as households carry excess savings on their balance sheets.