The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through May 18th. The 60.8 reading is significantly lower than the consensus estimate of 66.3, reported by Briefing.com, and a sharp decline from the the April slight upward revision to 66.0 (from 65.4). It is the lowest reading since December 2010.
Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of The Conference Board Consumer Research Center: “A more pessimistic outlook is the primary reason for this month’s decline in consumer confidence. Consumers are considerably more apprehensive about future business and labor market conditions as well as their income prospects. Inflation concerns, which had eased last month, have picked up once again. On the other hand, consumers’ assessment of current conditions declined only modestly, suggesting no significant pickup or deterioration in the pace of growth.”
Consumers’ assessment of current conditions, while still mixed, was somewhat less favorable than in April. Those claiming business conditions are “good” decreased to 14.6 percent from 15.5 percent, while those claiming business conditions are “bad” increased to 37.1 percent from 35.9 percent. Consumers’ appraisal of the labor market was also less favorable than last month. Those stating jobs are “hard to get” increased to 43.9 percent from 42.4 percent, while those stating jobs are “plentiful” increased to 5.6 percent from 5.1 percent.
Consumers’ short-term outlook, which had improved marginally in April, turned pessimistic in May. The proportion of consumers expecting business conditions to improve over the next six months declined to 17.0 percent from 19.2 percent, while those anticipating business conditions will worsen increased to 15.5 percent from 14.0 percent.
Consumers were also pessimistic about the labor market outlook for the next six months. Those expecting more jobs in the months ahead declined to 15.9 percent from 17.8 percent, while those anticipating fewer jobs increased to 20.8 percent from 18.7 percent. The proportion of consumers expecting an increase in their incomes declined to 14.8 percent from 17.0 percent. More…
The 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 well above the bottom of the unprecedented trough in 2008, but it is well below the average confidence level of recessions a full 22 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 indicator of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference. Today’s reading of 60.8 is significantly below the 84.6 of the current regression level (28.1% 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 1990-1991 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. The common factor in all three cases is a “jobless recovery”. Consumer Confidence appears to be a proxy for unemployment problems.
On a percentile basis, the latest reading is at the 14th percentile of all the monthly readings since the start of this data series in June 1977 and at the 10th percentile of all the non-recessionary months.
For a confirming 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 remained depressed despite the official end to the recession in June 2009.
Michigan Consumer Sentiment Rebound Continues in May by Doug Short
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Small Business Sentiment: Gloom Continued in April by Doug Short
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