Conference Board Consumer Confidence Falls to Great Recession Levels in October 2011

by Steven Hansen and Doug Short

The Latest Conference Board Consumer Confidence Index fell from 46.4 to 38.9 – well below the consensus estimate of 46.0, of

This index is now in full blown recession territory, and at the lowest level outside of a declared recession.

Here is an excerpt from the Conference Board report.

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer confidence is now back to levels last seen during the 2008-2009 recession. Consumer expectations, which had improved in September, gave back all of the gain and then some, as concerns about business conditions, the labor market and income prospects increased. Consumers’ assessment of present-day conditions did not fare any better. The Present Situation Index posted its sixth consecutive monthly decline, as pessimism about the current economic environment continues to grow.”

Consumers’ appraisal of present-day conditions deteriorated further in October. Those claiming business conditions are “bad” increased to 43.7 percent from 40.5 percent, while those claiming business conditions are “good” decreased to 11.0 percent from 12.1 percent. Consumers’ assessment of the labor market was also less favorable. Those claiming jobs are “plentiful” decreased to 3.4 percent from 5.6, however, those saying jobs are “hard to get” decreased to 47.1 percent from 49.4 percent.

Consumers’ short-term outlook, which had improved last month, reversed course in October. Those expecting business conditions to improve over the next six months decreased to 9.1 percent from 11.8 percent, while those expecting business conditions to worsen edged down to 21.5 percent from 21.9 percent.

Consumers’ outlook for the job market was slightly more pessimistic. Those anticipating more jobs in the months ahead edged down to 11.3 percent from 11.9 percent, while those expecting fewer jobs decreased to 27.4 percent from 28.6 percent. The proportion of consumers anticipating an increase in their incomes declined to 10.3 percent from 13.5 percent.  More…

The following is a graphical comparison of confidence levels between the National Federation of Independent Business (NFIB), Reuters/University of Michigan Consumer Sentiment Index (UM), and the Conference Board Consumer Confidence Index (CCI). Hat tip to Bloomberg.

Indexed to 2007, the Conference Board’s Consumer Confidence Index remains lower than the University of Michigan Index.  However, all indices remain in a general decline.

Known Issues with this 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.

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 above the bottom of the unprecedented trough in 2008, but it is far below the average confidence level of recessions a full 28 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 39.8 is dramatically below the 81.9 of the current regression level (51.4% below, to be precise).

Click to ViewClick for a larger image

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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