Here’s What 5-Year Highs in Consumer Confidence Mean for Retailers

A report released Friday by Thomson Reuters and the University of Michigan showed that U.S. consumers now feel more optimistic about their own finances and the state of the economy than they have in five years.

The final reading of October’s overall consumer sentiment index came in at 82.6, the highest recorded final reading since September 2007.  The upbeat consumer attitude jumped from last month’s final reading of 78.3.

Consumers feeling more confident in the nation’s long-beleaguered economy and more comfortable with their individual financial situations should bode well for the upcoming holiday season, when major retailers will pull all out the stops in an effort to catalyze consumer spending.

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Retailers like Walmart (NYSE:WMT), Target (NYSE:TGT), and Sears (NASDAQ:SHLD) – which have introduced a variety of promotions that include layaway options, same-day delivery services, and price-matching guarantees in the hopes of luring holiday shoppers – should be celebrating this latest consumer sentiment improvement.

However, those who conducted the survey warn it might not be all sunshine and rainbows ahead.

“While the surge in confidence will act to bolster consumer spending during the upcoming holiday season, it also means that this higher level of confidence is more vulnerable to reversal and has thus raised the stakes for post-election economic policies,” said Richard Curtin, the director of the survey.

Following November’s presidential election, tough decisions on a series of scheduled tax increases and spending reductions will be awaiting the victor.  The policies enacted, and the political squabbling that could ensue, could pull consumer confidence back down.

“Unless the legislation is carefully managed by whoever wins, the debate could produce the same depressing effect on consumer confidence as last year’s debt ceiling fiasco,” Curtin added.

Two-thirds of the consumers who participated in the survey reported they expect President Barack Obama to win his bid for re-election.

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