The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through June 16th. The 58.5 reading is lower than the consensus estimate of 60.8, reported by Briefing.com, and a decline from the the May upward revision to 61.7 (from 60.8). It is the lowest reading since December 2010.
Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of The Conference Board Consumer Research Center: “This month’s decline in consumer confidence was driven by a less favorable assessment of current conditions and continued pessimism about the short-term outlook. Consumers rated both current business and labor market conditions less favorably than in May, and fewer consumers than last month foresee conditions improving over the next six months. Inflation fears eased considerably in June, but concerns about income prospects increased. Given the combination of uneasiness about the economic outlook and future earnings, consumers are likely to continue weighing their spending decisions quite carefully.”
Consumers’ appraisal of present conditions was less favorable than in May. Those claiming business conditions are “good” remained the same at 14.3 percent, while those claiming business conditions are “bad” increased to 38.0 percent from 37.2 percent. Consumers’ assessment of the job market was also less favorable. Those stating jobs are “hard to get” increased to 43.8 percent from 43.5 percent, while those stating jobs are “plentiful” decreased to 5.2 percent from 5.7 percent.
Consumers’ short-term outlook, which had weakened in May, declined further in June. The proportion of consumers expecting business conditions to improve over the next six months declined to 16.4 percent from 17.2 percent. However, those anticipating business conditions will worsen decreased to 14.7 percent from 15.4 percent.
Consumers remained pessimistic about the outlook for the job market over the next six months. Those anticipating more jobs in the months ahead declined to 14.2 percent from 16.7 percent, while those expecting fewer jobs remained unchanged at 20.3 percent. The proportion of consumers anticipating an increase in their incomes declined to 13.9 percent from 14.9 percent. More…
The Sobering Historical 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 data series, which dates from June 1977. The latest number is well above the bottom of the unprecedented trough in 2008, but it is well below the average confidence level of recessions a full 25 months after the end of the Great Recession (based on the official call of the National Bureau of Economic Research).
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 linear 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 probably a more revealing indicator of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference. Today’s reading of 58.5 is significantly below the 83.8 of the current regression level (30.2% below, to be precise).
It is interesting that the consumer confidence pattern of the past 18 months following the NBER declared end to the recession is similar to the 36-month pattern following the 1990-1991 recession, although the current pattern has so far been at a lower confidence level. At an even higher level, there was also a two year period following the 2001 recession where confidence lagged. The common factor in all three cases is a “jobless recovery”. Consumer Confidence appears to be a proxy for unemployment problems.
On a percentile basis, the latest reading is at the 11th percentile of all the monthly readings since the start of this data series in June 1977 and at the 10th percentile of all the non-recessionary months.
For a confirming 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 been closely correlated since the onset of the Financial Crisis.
The NFIB index has been less volatile than the Conference Board Consumer Confidence Index, but it has likewise remained depressed despite the official end to the recession in June 2009.
Michigan Consumer Sentiment Dips by Doug Short
Leading Economic Indicator Higher?? in May 2011 by Steven Hansen
The Great Recession Continues for the Consumer by Rick Davis