The April 2012 Conference Board Consumer Confidence Index fell to 69.2 from a downwardly revised 69.5 for March. The market expected this index to come in between 69.5 and 71.0 (versus the 69.2).
This index remains in territory associated with past recessions – however, it remains near the highest level since the end of the 2007-09 recession. Note that this data is considered preliminary, and the cutoff for these results was April 12.
Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer Confidence was virtually unchanged in April, following a modest decline in March. As was the case last month, the slight dip was prompted by a moderation in consumers’ short-term outlook, while their assessment of current conditions continued to improve. Overall, consumers are more upbeat about the state of the economy, but they remain cautiously optimistic.”
Consumers’ assessment of current conditions improved in April. Those claiming business conditions are “good” increased to 15.3 percent from 14.3 percent. However, those claiming business conditions are “bad” edged up to 33.5 percent from 33.2 percent. Consumers’ appraisal of the job market remained mixed. Those stating jobs are “hard to get” declined to 37.5 percent from 40.7 percent, while those stating jobs are “plentiful” decreased to 8.4 percent from 9.0 percent.
Consumers were, once again, slightly less optimistic about the short-term outlook. Those expecting business conditions to improve over the next six months decreased to 18.8 percent from 19.3 percent, while those anticipating business conditions will worsen increased to 14.2 percent from 13.7 percent.
Consumers’ outlook for the labor market was less upbeat. Those anticipating more jobs in the months ahead decreased to 16.9 percent from 17.4 percent, however, those anticipating fewer jobs decreased to 18.0 percent from 18.5 percent. The proportion of consumers expecting an increase in their incomes declined to 14.0 percent from 15.5 percent.
The Recessionary Mindset
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 virtually identical to the 69.4 average confidence level of recessionary months a full 35 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 69.5 is well below the 80.9 of the current regression level (14.4% below, to be precise).
It is interesting that the consumer confidence pattern of the past 34 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.
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 16.9 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 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.