The January 2014 Conference Board Consumer Confidence Index rebound continues. The market expected this index to come in at 77.0 to 77.5 (versus the 79.1 reported).
This index still remains in territory associated with past recessions. Note that this data is considered preliminary, and the cutoff for these results was 16 January 2014.
Here is an excerpt from The Conference Board:
The Conference Board Consumer Confidence Index®, which had rebounded in December, increased again in January. The Index now stands at 80.7 (1985=100), up from 77.5 in December. The Present Situation Index increased to 79.1 from 75.3. The Expectations Index increased to 81.8 from 79.0 last month.
“Consumer confidence advanced in January for the second consecutive month,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of the present situation continues to improve, with both business conditions and the job market rated more favorably. Looking ahead six months, consumers expect the economy and their earnings to improve, but were somewhat mixed regarding the outlook for jobs. All in all, confidence appears to be back on track and rising expectations suggest the economy may pick up some momentum in the months ahead.”
Consumers’ assessment of overall present-day conditions continues to improve. Those claiming business conditions are “good” increased to 21.5 percent from 20.2 percent, while those claiming business conditions are “bad” edged down to 22.8 percent from 23.2 percent. Consumers’ appraisal of the labor market was also more positive. Those saying jobs are “plentiful” ticked up to 12.7 percent from 11.9 percent, while those saying jobs are “hard to get” decreased slightly to 32.6 percent from 32.9 percent.
Consumers’ expectations, which had improved sharply in December, increased again in January. Those expecting business conditions to improve over the next six months remained unchanged at 17.4 percent, while those anticipating business conditions to worsen decreased to 12.1 percent from 13.9 percent. Consumers’ outlook for the labor market was mixed. Those expecting more jobs in the months ahead declined to 15.4 percent from 17.1 percent. However, those anticipating fewer jobs decreased to 18.3 percent from 19.4 percent. The proportion of consumers expecting their incomes to increase rose to 15.8 percent from 13.9 percent, while those anticipating a decrease in their incomes declined to 13.6 percent from 14.3 percent.
Putting the Latest Number in 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 has moved 11.3 points above the recession mindset but remains 13.7 points below the non-recession average.
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 exponential 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 80.7 is just a tad above the current regression level of 78.3.
On a percentile basis, the latest reading is at the 32.5 percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 28.0 percentile (i.e., three points above the lowest quartile) 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 tracked one another fairly closely since the onset of the Financial Crisis.
The NFIB index has been less volatile than the Conference Board Consumer Confidence Index.
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.