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Monday, February 6, 2023

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Consumer Confidence Takes an Unexpected Dive

Courtesy of Doug Short.

The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through January 19th. The 61.1 reading is substantially below the consensus estimate of 67.0 reported by Briefing.com, which is the same as Briefing.com’s own estimate. Are we seeing a reversal of the holiday optimism reflected in last month’s 64.8 level (which was an upward revision from 64.5)?

Here is an excerpt from the Conference Board report.

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer Confidence retreated in January, after large back-to-back gains in the final two months of 2011. Consumers’ assessment of current business and labor market conditions turned more downbeat and is back to November 2011 levels. Regarding the short-term outlook, consumers are more upbeat about employment, but less optimistic about business conditions and their income prospects. Recent increases in gasoline prices may have consumers feeling a little less confident this month.”

Consumers’ appraisal of current conditions was less favorable in January. Those claiming business conditions are “good” decreased to 13.3 percent from 16.3 percent, while those stating business conditions are “bad” increased to 38.7 percent from 33.5 percent. Consumers? assessment of the labor market was also less positive. Those saying jobs are “plentiful” decreased to 6.1 percent from 6.6 percent, while those claiming jobs are “hard to get” increased to 43.5 percent from 41.6 percent.

Consumers’ short-term outlook was slightly weaker than it was last month. The proportion of consumers anticipating business conditions to improve over the next six months decreased to 16.6 percent from 16.8 percent, while those expecting business conditions will worsen increased to 15.1 percent from 13.4 percent. Consumers’ outlook for the labor market, however, was moderately more favorable. Those expecting more jobs in the months ahead increased to 16.2 percent from 14.0 percent, while those anticipating fewer jobs declined to 19.5 percent from 20.2 percent. The proportion of consumers expecting an increase in their incomes declined to 13.8 percent from 16.3 percent.   [press release]

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 monthly data series, which dates from June 1977. The latest number is well above the bottom of the unprecedented trough in 2008, but it is well below the 69.4 average confidence level of recessionary months a full 32 months 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 61.1 is dramatically below the 81.3 of the current regression level (24.9% below, to be precise).

 

 

It is interesting that the consumer confidence pattern of the past 32 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. A common factor in all three cases is a “jobless recovery”. To great extent Consumer Confidence is a proxy for unemployment problems. The rise in confidence in recent months is is concurrent with an improvement in the monthly unemployment numbers, although the January confidence report runs counter to the trend.

On a percentile basis, the latest reading is at the 15th percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 11th 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 remained depressed despite the official end to the recession in June 2009.

 

 

 

 

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