The March 2013 Conference Board Consumer Confidence Index has sunk after last month’s improvement – and still remains at recessionary levels. The market expected this index to come in at 65.0 to 66.9 (versus the 59.7 reported).
This index remains in territory associated with past recessions. Note that this data is considered preliminary, and the cutoff for these results was 14 March 2013.
Here is an excerpt from Lynn Franco, Director of Economic Indicators at The Conference Board:
“Consumer Confidence fell sharply in March, following February’s uptick. This month’s retreat was driven primarily by a sharp decline in expectations, although consumers were also more pessimistic in their assessment of current conditions. The loss of confidence, particularly expectations, mirrors the losses experienced this past December and January. The recent sequester has created uncertainty regarding the economic outlook and as a result, consumers are less confident.”
Consumers’ appraisal of current conditions declined in March. Those saying business conditions are “good” decreased to 16.0 percent from 17.6 percent, while those stating business conditions are “bad” increased to 29.3 percent from 28.2 percent. Consumers’ assessment of the labor market was mixed. Those claiming jobs are “plentiful” decreased to 9.4 percent from 10.1 percent, but those claiming jobs are “hard to get” edged down to 36.2 percent from 36.9 percent.
Consumers are once again pessimistic about the short-term outlook. Those expecting business conditions to improve over the next six months decreased to 14.4 percent from 18.0 percent, while those anticipating business conditions to worsen increased to 18.3 percent from 16.6 percent.
Consumers’ outlook for the labor market was also less favorable. Those expecting more jobs in the months ahead declined to 12.3 percent from 16.1 percent, while those expecting fewer jobs increased to 26.6 percent from 22.1 percent. The proportion of consumers expecting their incomes to increase fell to 13.7 percent from 15.8 percent, while those expecting a decrease edged down to 18.0 percent from 19.3 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 reflects a recessionary mindset. It is virtually nearly 10 points below the average confidence of recessionary months.
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 a far 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 59.7 is 24.2% below the current regression level of 78.8.
On a percentile basis, the latest reading is at the 13.9 percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 10.4 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.