Consumer Confidence is a chicken and egg thing with me. Many (maybe most) analysts believe good consumer confidence ushers in improving economic conditions. My position is that confidence is a rear-view mirror of the economy – and consumers merely reacting to the reality.
However, as a personal reality check – I do take a detailed look at consumer confidence. My motivation today was headline from AP:
Americans’ confidence rose to a five-month high in November amid more hopeful signs for the economy. The report offered some comfort to the nation’s retailers during the holiday shopping season, but shoppers still remain downbeat as they grapple with a high unemployment rate.
Sounds like consumer confidence is taking off. The Conference Board’s Consumer Confidence release (recently without graphics) contained a quote from Lynn Franco, Director of The Conference Board Consumer Research Center:
Consumer confidence is now at its highest level in five months, a welcome sign as we enter the holiday season. Consumers’ assessment of the current state of the economy and job market, while only slightly better than last month, suggests the economy is still expanding, albeit slowly. Expectations, the main driver of this month’s increase in confidence, are now at the highest level since May (Exp. Index, 84.6). Hopefully, the improvement in consumers’ mood will continue in the months ahead.
The economy likely improved moderately in November, and consumer confidence paralleling this. But the reality is there is no big jump in consumer confidence. It should be noted that the Thomson Reuters/University of Michigan Survey of Consumers released last week also rose. But unlike The Conference Board, UofM added more detailed analysis.
The UofM Surveys of Consumers chief economist, Richard Curtin added perspective to the increase in consumer confidence:
It is clearly too early to declare the November uptick in consumer confidence a turning point. It marks the third time that the Sentiment Index has reached this level since the cyclical low was recorded two years ago. In each of the prior rebounds, the gains as well as subsequent losses were mostly based on changing prospects for the economy. Unfortunately, there has been no improvement in consumers’ financial prospect in the past two years. While consumers clearly believe that the recovery has gained some traction, most still think that the economic gains will be too small to improve their own job and income position anytime soon.
The UofM consumer confidence analysis included the following context:
The personal finances of consumers remained quite bleak in November. Nearly twice as many consumers reported that their finances had worsened rather than improved during the past year, with one-in-three reporting declines in household income. There has been some small improvement since the cyclical low point. Income gains were reported twice as frequently this November compared with a year ago, although the frequency of income gains have remained unchanged for the past 4 months. The larger problem was that just 25% of all households expected their finances to improve during the year ahead, down from 29% last November. The majority of households expected no income increase during the year ahead in November, for the 23rd consecutive month, an all-time record. Households with incomes above $75,000 held the same dismal outlook for their finances, showing no improvement in their financial expectations for the year ahead. Holiday sales will be based, more than ever, on the availability of discounts as consumers continue to cope with their dismal financial circumstances.
The facts show consumer confidence has never recovered from the Great Recession. The values today are lower than any point since 2000 (ignoring the Great Recession lows). Whether you believe consumer confidence leads economic activity, or that it is a reflection of economic activity – the data remains terrible.