August 2016 Conference Board Consumer Confidence at 11-Month High

Written by Doug Short and Steven Hansen

The Conference Board Consumer Confidence Index increased to 101.1, compared to 96.7 in July. The market expected (from Bloomberg) this index to come in between 94.5 to 98.3 (consensus 97.3).

Note that this data is considered preliminary, and the cutoff for these results was 18 August 2016.

Here is an excerpt from The Conference Board:

The Conference Board Consumer Confidence Index®, which had decreased slightly in July, increased in August. The Index now stands at 101.1 (1985=100), compared to 96.7 in July. The Present Situation Index rose from 118.8 to 123.0, while the Expectations Index improved from 82.0 last month to 86.4.

The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch.

“Consumer confidence improved in August to its highest level in nearly a year, after a marginal decline in July,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of both current business and labor market conditions was considerably more favorable than last month. Short-term expectations regarding business and employment conditions, as well as personal income prospects, also improved, suggesting the possibility of a moderate pick-up in growth in the coming months.”

Consumers’ appraisal of current conditions improved in August. Those stating business conditions are “good” increased from 27.3 percent to 30.0 percent, while those saying business conditions are “bad” remained virtually unchanged at 18.4 percent. Consumers’ assessment of the labor market was also more favorable. Those claiming jobs were more “plentiful” increased from 23.0 percent to 26.0 percent, however, those claiming jobs are “hard to get” also rose, from 22.1 percent to 23.4 percent.

Consumers’ optimism regarding the short-term outlook picked up in August. The percentage of consumers expecting business conditions to improve over the next six months increased from 15.7 percent to 17.3 percent, while those expecting business conditions to worsen decreased from 12.4 percent to 11.1 percent.

Consumers’ outlook for the labor market was also more favorable than in July. The proportion expecting more jobs in the months ahead rose from 13.5 percent to 14.2 percent, while those anticipating fewer jobs remained virtually unchanged at 17.5 percent. The percentage of consumers expecting their incomes to increase improved from 17.1 percent to 18.8 percent, while the proportion expecting a decline decreased marginally from 11.0 percent to 10.7 percent.

Putting the Latest Number in Context

The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy. Toward this end we have highlighted recessions and included GDP. The 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 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.

On a percentile basis, the latest reading is at the 63rd percentile of all the monthly data points since June 1977, up from 53rd the previous month.

For an additional perspective on consumer attitudes, see 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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