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Consumer Confidence Stuck At Recession Levels

  • Written by Syndicated Publisher No Comments Comments
    February 28, 2013

    The Latest Conference Board Consumer Confidence Index released today was based on data collected through February 14. The 69.6 reading was well above the consensus estimate of 62.0 reported by Briefing.com. Today’s number is major increase over January’s grim reading of 58.4 (a fractional downward revision from 58.6. But in context of this indicator’s history, the consumer remains in a recessionary mindset.

    Here is an excerpt from the Conference Board report.

    Says Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer Confidence rebounded in February as the shock effect caused by the fiscal cliff uncertainty and payroll tax cuts appears to have abated. Consumers’ assessment of current business and labor market conditions is more positive than last month. Looking ahead, consumers are cautiously optimistic about the outlook for business and labor market conditions. Income expectations, which had turned rather negative last month, have improved modestly.”

    Consumers’ assessment of present day conditions improved in February. Those claiming business conditions are “good” rose to 18.1 percent from 16.1 percent, while those stating business conditions are “bad” decreased to 27.8 percent from 28.4 percent. Consumers’ appraisal of the labor market was mixed. Those saying jobs are “plentiful” increased to 10.5 percent from 8.5 percent, while those claiming jobs are “hard to get” edged up to 37.0 percent from 36.6 percent.

    Consumers were more optimistic about the short-term outlook this month. Those expecting business conditions to improve over the next six months increased to 18.9 percent from 15.6 percent, while those expecting business conditions to worsen declined to 16.5 percent from 20.4 percent.

    Consumers’ outlook for the labor market was more positive. Those anticipating more jobs in the months ahead improved to 16.7 percent from 14.4 percent, while those expecting fewer jobs decreased to 21.5 percent from 26.7 percent. The proportion of consumers expecting their incomes to increase rose to 15.7 percent from 13.5 percent, while those anticipating a decrease fell to 19.6 percent from 23.3 percent.   [press release]

    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 reflects a recessionary mindset. It is virtually spot on the 69.4 average confidence of recessionary months.

    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 a far 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 69.6 is 12.0% below the current regression level of 79.1.

     

     

    On a percentile basis, the latest reading is at the 24.2 percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 18.9 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 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.

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.

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