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posted on 29 December 2015

December 2015 Conference Board Consumer Confidence Well Above Expectations.

Written by Doug Short and Steven Hansen

The Conference Board Consumer Confidence Index improved to 96.5 in December from the November final reading of 96.2, an upward revision of November's initial 90.4. The market expected (from Bloomberg) this index to come in between 90.7 to 95.0 (consensus 93.5).

Note that this data is considered preliminary, and the cutoff for these results was 15 December 2015.

Here is an excerpt from The Conference Board:

The Conference Board Consumer Confidence Index®, which had decreased moderately in November, improved in December. The Index now stands at 96.5 (1985=100), up from 92.6 in November. The Present Situation Index increased from 110.9 last month to 115.3 in December, while the Expectations Index improved to 83.9 from 80.4 in November.

"Consumer confidence improved in December, following a moderate decrease in November," said Lynn Franco, Director of Economic Indicators at The Conference Board. "As 2015 draws to a close, consumers' assessment of the current state of the economy remains positive, particularly their assessment of the job market. Looking ahead to 2016, consumers are expecting little change in both business conditions and the labor market. Expectations regarding their financial outlook are mixed, but the optimists continue to outweigh the pessimists."

Consumers' appraisal of current conditions was mixed in December. Those saying business conditions are "good" increased from 25.0 percent to 27.3 percent. However, those saying business conditions are "bad" also increased from 16.9 percent to 19.8 percent. Consumers, however, were more positive about the labor market. The proportion claiming jobs are "plentiful" increased from 21.0 percent to 24.1 percent, while those claiming jobs are "hard to get" decreased to 24.7 percent from 25.8 percent.

Consumers' optimism about the short-term outlook was somewhat mixed in December. Those expecting business conditions to improve over the next six months decreased slightly to 15.2 percent from 15.7 percent. However, those expecting business conditions to worsen increased slightly to 11.0 percent from 10.6 percent.

Consumers' outlook for the labor market was more optimistic. Those anticipating more jobs in the months ahead increased slightly to 12.9 percent from 12.0 percent, while those anticipating fewer jobs decreased from 18.5 percent to 16.6 percent. The proportion of consumers expecting their incomes to increase declined from 17.3 percent to 16.3 percent. However, the proportion expecting a reduction in income decreased from 11.8 percent to 9.7 percent.

Putting the Latest Number in Context

The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy. Toward this end we have highlighted recessions and included GDP. The 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 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.

On a percentile basis, the latest reading is at the 53% level of all the monthly data points since June 1977. That's an increase from 43% previous month.

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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