The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through January 18. The 70.4 reading was higher than the consensus estimate of 67.0, reported by Briefing.com and a rise over the January upward revision of 64.8. Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of The Conference Board Consumer Research Center: “The Consumer Confidence Index is now at a three-year high (Feb. 2008, 76.4), due to growing optimism about the short-term future. Consumers’ assessment of current business and labor market conditions has improved moderately, but still remains rather weak. Looking ahead, consumers are more positive about the economy and their income prospects, but feel somewhat mixed about employment conditions.”
Consumers’ appraisal of present-day conditions improved moderately in February. Those stating business conditions are “good” increased to 12.4 percent from 11.3 percent, while those claiming business conditions are “bad” was unchanged at 39.6 percent. Consumers’ assessment of the labor market was also more positive than in January. Those saying jobs are “plentiful” rose to 4.9 percent from 4.6 percent, while those stating jobs are “hard to get” decreased to 45.7 percent from 47.0 percent.
Consumers’ short-term outlook was more optimistic than in January. Those expecting business conditions to improve over the next six months increased to 24.4 percent from 24.0 percent, while those anticipating business conditions will worsen declined to 10.4 percent from 12.2 percent.
Consumers were mixed about the job market. Those expecting more jobs in the months ahead edged down to 19.8 percent from 20.8 percent, however, those anticipating fewer jobs decreased to 15.4 percent from 21.2 percent. The proportion of consumers expecting an increase in their incomes rose to 17.3 percent from 15.3 percent. More…
The More 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 data series, which dates from June 1977. The latest number is very close to the average confidence level of recessions.
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 indicator of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference. Today’s reading of 70.4 is significantly below the 84.9 of the current regression level (17.1% below, to be precise).
It is interesting that the consumer confidence pattern of the past 18 months following the NBER declared end to the recession is similar to the 36-month pattern following the 1990-91 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. The common factor in all three cases is a “jobless recovery”. Consumer Confidence appears to be a proxy for unemployment problems. See chart that shows the general correlation. (Note: chart doens’t have the latest 12-months of data.)
On a percentile basis, the latest reading is at the 21st percentile of all the monthly readings since the middle 0f 1977 and at the 14th percentile of all the non-recessionary months. All but nine of the 52 months in the lowest 14th percentile occurred in the recovery from the 1990-91 recession (23 occurred then) in the current recovery (20 so far now) and only seven months occurred before 1990.
For an interesting comparison, 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 remained bleak despite the official end to the recession in June 2009.