June 2014 Conference Board Consumer Confidence Continues to Improve
The June 2014 Conference Board Consumer Confidence Index rose moderately after rising in May. The market expected this index to come in at 81.0 to 86.0 (consensus 83.7) versus the 85.2 reported.
This index still remains in territory associated with past recessions. Note that this data is considered preliminary, and the cutoff for these results was 13 June 2014.
Here is an excerpt from The Conference Board:
The Conference Board Consumer Confidence Index®, which had increased in May, improved again in June. The Index now stands at 85.2 (1985=100), up from 82.2 in May. The Present Situation Index increased to 85.1 from 80.3, while the Expectations Index rose to 85.2 from 83.5 in May.
Says Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer confidence continues to advance and the index is now at its highest level since January 2008 (87.3). June’s increase was driven primarily by improving current conditions, particularly consumers’ assessment of business conditions. Expectations regarding the short-term outlook for the economy and jobs were moderately more favorable, while income expectations were a bit mixed. Still, the momentum going forward remains quite positive.
Consumers’ appraisal of current conditions improved in June. Those claiming business conditions are “good” increased to 23.0 percent from 21.1 percent, while those stating business conditions are “bad” decreased to 22.8 percent from 24.6 percent. Consumers’ assessment of the job market was also more favorable. Those stating jobs are “plentiful” edged up to 14.7 percent from 14.2 percent, while those claiming jobs are “hard to get” declined to 31.8 percent from 32.2 percent.
Consumers’ expectations were generally more positive in June. The percentage of consumers expecting business conditions to improve over the next six months increased to 18.8 percent from 17.7 percent. However, those expecting business conditions to worsen increased to 11.4 percent from 10.7 percent. Consumers were more positive about the outlook for the labor market. Those anticipating more jobs in the months ahead increased to 16.3 percent from 15.2 percent, while those anticipating fewer jobs edged down to 18.7 percent from 18.9 percent. Fewer consumers expect their incomes to grow, 15.9 percent versus 18.0 percent, but those expecting a drop in their incomes also declined, to 12.1 percent from 14.5 percent.
Putting the Latest Number in Context
Let's take a step back and put Lynn Franco's interpretation in a larger perspective. The table here shows the average consumer confidence levels for each of the five recessions during the history of this monthly data series, which dates from June 1977. The latest number has moved 15.8 points above the recession mindset but remains 9.0 points below the non-recession average.
The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy. Toward this end I have highlighted recessions and included GDP. The exponential regression through the index data shows the long-term trend and highlights the extreme volatility of this indicator. Statisticians may assign little significance to a regression through this sort of data. But the slope clearly resembles the regression trend for real GDP shown below, and it is a more revealing gauge of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference. Today's reading of 85.2 is above the current regression point of 78.2.
On a percentile basis, the latest reading is at the 38.0 percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 33.6 percentile of non-recessionary months.
For an additional perspective on consumer attitudes, see my post on the most recent Reuters/University of Michigan Consumer Sentiment Index. Here is the chart from that post.
And finally, let’s take a look at the correlation between consumer confidence and small business sentiment, the latter by way of the National Federation of Independent Business (NFIB) Small Business Optimism Index. As the chart illustrates, the two have tracked one another fairly closely since the onset of the Financial Crisis.
Caveats in Using the Conference Board’s Consumer Confidence Index
According to Bloomberg, the following caveat is provided when reviewing this series:
The underlying series for ”planned purchases” (autos, homes, and major appliances) and ”vacation intentions” showed larger increases in November 2010 levels, primarily due to sample design differences. These level shifts will be treated as breaks, and there will be no historial revisions. Neither series is included in or has any impact on the Consumer Confidence Index.The switch to the Census X-12 seasonal adjustment program produced only minor differences for both levels and month-to-month changes. As a result, The Conference Board did not find it necessary to undertake a full historical revision of the CCI time series based on the seasonal adjustment method. The restated data for November 2010, December 2010 and January 2011 (preliminary data) are based on the prior seasonal adjustment method. This index is an average of responses to the following questions: 1. Respondents appraisal of current business conditions. 2. Respondents expectations regarding business conditions six months hence. 3. Respondents appraisal of the current employment conditions. 4. Respondents expectations regarding employment conditions six months hence. 5. Respondents expectations regarding their total family income six months hence. For each of the 5 questions, there are three response options: Postive, Negative and Neutral. The response proportions to each question are seasonally adjusted. For each of the five question (above), the POSITIVE figure is divided by the sum of the POSITIVE and NEGATIVE to yield a proportion, which we call the ‘RELATIVE’ value. For each question, the average RELATIVE for the calendar year 1985 is then used as a benchmark to yield the INDEX value for that question. From 1967 to mid 1977 the CCI was bi-monthly.
This is a survey based on a probability-design random sample – conducted for The Conference Board by Nielsen. Surveys are a quantification of opinion rather than facts and data.
Observers of consumer sentiment polls should be aware they are imperfect quantifications of opinion. The question arises whether they are a rear view window or a forward looking indicator – or possibly a little of each. There is little question, however, that poor consumer sentiment corresponds to poor economic performance. Econintersect believes that consumer sentiment is mostly a coincident or lagging economic indicator.
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