The May 2012 Conference Board Consumer Confidence Index fell to 64.9 from a downwardly revised 67.8 for April. The market expected this index to come in between 69.4 and 71.0 (versus the 64.9).
This index remains in territory associated with past recessions – however, it remains high relative to the average values seen since the end of the 2007-09 recession. Note that this data is considered preliminary, and the cutoff for these results was May 16.
Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer Confidence fell in May, following a slight decline in April. Consumers were less positive about current business and labor market conditions, and they were more pessimistic about the short-term outlook. However, consumers were more upbeat about their income prospects, which should help sustain spending. Taken together, the retreat in the Present Situation Index and softening in consumer expectations suggest that the pace of economic growth in the months ahead may moderate.”
Consumers’ appraisal of present-day conditions deteriorated in May. Those claiming business conditions are “bad” increased to 34.3 percent from 33.2 percent, while those saying business conditions are “good” decreased to 13.6 percent from 15.5 percent. Consumers’ appraisal of the job market was also less favorable. Those claiming jobs are “hard to get” increased to 41.0 percent from 38.1 percent, while those stating jobs are “plentiful” decreased to 7.9 percent from 8.4 percent.
Consumers have also grown less upbeat about the short-term outlook. Those expecting business conditions to improve over the next six months decreased to 16.6 percent from 18.5 percent. However, those anticipating business conditions will worsen decreased to 13.1 percent from 14.2 percent.
Consumers’ outlook for the labor market was also less positive. Those expecting more jobs in the months ahead decreased to 15.8 percent from 16.9 percent, while those anticipating fewer jobs increased to 21.0 percent from 18.4 percent. The proportion of consumers expecting an increase in their incomes improved to 15.2 percent from 13.9 percent.
The Recessionary Mindset
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 well above the bottom of the unprecedented trough in 2008, but it has now fallen below the 69.4 average confidence of recessionary months three years 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 gauge of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference. Today’s reading of 64.9 is well below the 80.7 of the current regression level (19.6% below, to be precise).
It is interesting that the consumer confidence pattern since 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. A common factor in all three cases is a “jobless recovery”. To a great extent, Consumer Confidence is a proxy for unemployment problems. The rise in confidence in earlier this year had been concurrent with an improvement in the monthly unemployment numbers. The decline in confidence over the past few months underscores the Conference Board’s findings of a gloomier outlook for the labor market.
On a percentile basis, the latest reading is at the 20th percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 14.6 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. There seems to be a bit of conflict between the Conference Board and Michigan results in recent months. The Sentiment Index has been moving higher while the Confidence Index has been dropping.
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 only partially recovered since the official end to the recession in June 2009.
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.