Written by Doug Short and Steven Hansen
The Conference Board Consumer Confidence Index improved after its sharp decline last month. The market expected this index to come in at 89.3 to 98.0 (consensus 93.0) versus the 92.6 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 December 2014.
Here is an excerpt from The Conference Board:
The Conference Board Consumer Confidence Index®, which had declined in November, improved in December. The Index now stands at 92.6 (1985=100), up from 91.0 in November. The Present Situation Index rose to 98.6 from 93.7, while the Expectations Index decreased to 88.5 from 89.3 in November.
Says Lynn Franco, Director of Economic Indicators at The Conference Board, “Consumer confidence rebounded modestly in December, propelled by a considerably more favorable assessment of current economic and labor market conditions. As a result, the Present Situation Index is now at its highest level since February 2008 (Index, 104.0). Consumers were moderately less optimistic about the short-term outlook in December, but even so, they are more confident at year-end than they were at the beginning of the year.”
Consumers’ appraisal of current conditions was considerably more favorable in December. Those saying business conditions are “good” was unchanged at 24.8 percent, while those claiming business conditions are “bad” decreased from 21.8 percent to 19.6 percent. Consumers were also more positive in their assessment of the job market, with the proportion stating jobs are “plentiful” increasing from 16.2 percent to 17.1 percent, and those claiming jobs are “hard to get” decreasing from 28.7 percent to 27.7 percent.
Consumers’ optimism about the short-term outlook eased moderately in December. The percentage of consumers expecting business conditions to improve over the next six months edged down from 18.3 percent to 18.0 percent, but those expecting business conditions to worsen declined slightly from 10.4 percent to 10.1 percent. Consumers’ outlook for the labor market was marginally less optimistic. Those anticipating more jobs in the months ahead decreased from 15.5 percent to 14.7 percent, while those anticipating fewer jobs rose from 16.1 percent to 16.9 percent. The proportion of consumers expecting growth in their incomes declined moderately from 16.9 percent to 16.4 percent; however the proportion expecting a decrease also declined, from 11.0 percent to 10.0 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 is 23.2 points above the recession mindset and 1.6 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 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 92.6 is well above the current regression point of 78.7.
On a percentile basis, the latest reading is at the 47th percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 43rd 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 tracked one another fairly closely since the onset of the Financial Crisis.
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.
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