by Doug Short and John Lounsbury
The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through April 14. The 65.4 reading is a point above the consensus estimate of 64.4, reported by Briefing.com and a modest improvement over the March slight upward revision to 63.8 (from 63.4). I call this a “modest” improvement because this index is a fairly volatile series. It has an average month-over-month change of 5.5%, which is double the 2.5% rise from last month.
Here is an excerpt from the Conference Board report.
|Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer confidence, which had declined sharply in March, posted a modest gain in April. Consumers’ short-term outlook improved slightly, suggesting that the uncertainty expressed last month is easing. Inflation expectations, which had spiked, retreated somewhat in April. Although confidence remains weak, consumers’ assessment of current conditions gained ground for the seventh straight month, a sign that the economic recovery continues.”Consumers’ appraisal of present-day conditions, although mixed, improved in April. Those stating conditions are “good” decreased slightly to 14.8 percent from 15.0 percent. Those stating business conditions are “bad” also declined slightly to 36.4 percent from 36.6 percent. Consumers’ assessment of the labor market was more favorable than last month. Those saying jobs are “hard to get” declined to 41.8 percent from 44.4 percent, while those stating jobs are “plentiful” increased to 5.2 percent from 4.6 percent.Consumers’ short-term outlook, which had soured in March, improved moderately in April. While those expecting business conditions to improve over the next six months declined to 18.8 percent from 20.8 percent, those anticipating business conditions to worsen decreased to 14.2 percent from 15.5 percent. Consumers were mixed about the labor market outlook for the next six months. Those expecting more jobs in the months ahead declined to 17.5 percent from 19.6 percent, while those anticipating fewer jobs declined to 19.0 percent from 20.5 percent. The proportion of consumers expecting an increase in their incomes improved to 16.7 percent from 15.2 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 well above the bottom of the unprecedented trough in 2008, but it is 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).
Expanding on the historical comparisons, two more tables have been prepared. The first shows that in many regards the strength of the consumer confidence rebound since the official end of the recession in June, 2009 is very close to the average for the five most recent recessions. This is true even including the 2001 recession recovery, which was essentially zero. The most remarkable parameter shown is the extremely low level of confidence during the recession. That is the reason why a rebound in confidence of a very typical amount has not yet succeeded in getting a typical level of consumer confidence 21 months after the recession has officially ended.
The next table shows that, at every stage of recovery, the rebound in consumer confidence in this recovery has fallen below a very wide normal range around the five recovery average.
The only other reading falling below the “normal” band of data is the 1980 recession reading 26 months later. That reading is similar to the 26-month reading for the current recession. However, the earlier low reading occurred 12 months after the severe 1981-82 recession had started. Consumer sentiment today is indeed in need of Prosac®.
The following graph gives a more visual perspective of how consumer confidence recoveries compare for the five most recent recessions.
The graphic 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 65.4 is significantly below the 84.6 of the current regression level (22.7% below, to be precise).
It is interesting that the consumer confidence pattern of the past 21 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 19th percentile of all the monthly readings since the start of this data series in June 1977 and at the 13th 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.
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