The February 2012 Conference Board Consumer Confidence Index rose to 70.8 from a slightly upwardly revised 61.5 for January. The market expected this index to come in between 62.5 and 63.5 (versus the 70.8).
Even with this sizable increase, this index remains in territory associated with past recessions – however, it nears the highest level seen since the end of the 2007 recession. Note that this data is considered preliminary, and the cutoff for these preliminary results was February 15.
Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer Confidence, which had declined last month, posted a sizeable improvement in February. The Index is now close to levels last seen a year ago (Feb. 2011, 72.0.). Consumers are considerably less pessimistic about current business and labor market conditions than they were in January. And, despite further increases in gas prices, they are more optimistic about the short-term outlook for the economy, job prospects, and their financial situation. ”
Consumers’ assessment of current conditions was more favorable in February. Those claiming business conditions are “good” increased slightly to 13.3 percent from 13.2 percent, while those claiming business conditions are “bad” decreased to 31.2 percent from 38.3 percent. Consumers’ appraisal of the labor market was also less pessimistic. Those stating jobs are “plentiful” increased to 6.6 percent from 6.2 percent, while those saying jobs are “hard to get” decreased to 38.7 percent from 43.3 percent.
Consumers were more optimistic about the short-term outlook than they were last month. The proportion of consumers expecting business conditions to improve over the next six months increased to 18.7 percent from 16.7 percent, while those anticipating business conditions will worsen decreased to 11.8 percent from 14.6 percent. Consumers’ outlook for the labor market was also more upbeat. Those anticipating more jobs in the months ahead increased to 18.7 percent from 16.4 percent, while those anticipating fewer jobs declined to 16.9 percent from 19.1 percent. The proportion of consumers expecting an increase in their incomes improved to 15.4 percent from 13.8 percent.
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 monthly data series, which dates from June 1977. The latest number is well above the bottom of the unprecedented trough in 2008, but it is only fractionally above the 69.4 average confidence level of recessionary months a full 33 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 gauge of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference. Today’s reading of 70.8 is well below the 81.2 of the current regression level (12.8% below, to be precise).
It is interesting that the consumer confidence pattern of the past 33 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. A common factor in all three cases is a “jobless recovery”. To great extent Consumer Confidence is a proxy for unemployment problems. The rise in confidence in recent months has been concurrent with an improvement in the monthly unemployment numbers, although the January confidence report runs counter to the trend.
On a percentile basis, the latest reading is at the 23rd percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 17th percentile of non-recessionary months.
For an additional perspective on consumer attitudes, see the 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 only partially recovered since the official end to the recession in June 2009.
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.