Consumer (Lack of) Confidence

Posted byDoug Short 4 Comments on Consumer (Lack of) Confidence

GEI welcomes Doug Short as a new contributor.  Doug will specialize in analysis of consumer confidence and write occasionally on other topics.  Bio is found at the end of this article. 

The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through December 20. The 52.5 reading was below the consensus estimate of 56.1, according to Briefing.com. Here is an excerpt from the Conference Board report:

The Conference Board Consumer Confidence Index, which had improved in November, decreased slightly in December. The Index now stands at 52.5 (1985=100), down from 54.3 in November. The Present Situation Index declined to 23.5 from 25.4. The Expectations Index decreased to 71.9 from 73.6 last month.  The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world’s largest custom research company. The cutoff date for December’s preliminary results was December 20th.Says Lynn Franco, Director of the Consumer Research Center at The Conference Board: “Despite this month’s modest decline, consumer confidence is no worse off today than it was a year ago. Consumers’ assessment of the current state of the economy and labor market remains tepid, and their outlook remains cautious. Thus, all signs continue to suggest that the economic expansion will continue well into 2011, but that the pace of growth will remain moderate.”   More…

 Let’s take a step back and put Lynn Franco’s rather rosy interpretation in a larger perspective. The chart below is intended to help evaluate the historical context for this index as a leading indicator of the economy. Toward this end I have included recessions and GDP. The linear regression through the index data shows the long-term trend of this very volatile indicator. Today’s 52.5 reading is significantly below the 85.3 of the current regression level (38.5% below, to be precise).

Click to View
Click for a larger image

For an interesting comparison, see this post on the November University of Michigan’s 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 optimism, the latter by way of the National Federation of Independent Business (NFIB).

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.