US: Consumer Confidence

Tue Jan 27 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 96.0 93.5 to 100.0 102.9 92.6 93.1

Consumer confidence is up very sharply this month, to a January reading and recovery best of 102.9 that is outside the Econoday forecast range (93.5 to 100.0). Gains sweep most readings including a 12.7 point surge in the present situation component to 112.6. Here, the jobs-hard-to-get subcomponent shows special strength in the jobs market, down 1.6 percentage points to 25.7 percent in a reading that is a positive indication for the monthly employment report.

The expectations component also shows strength, up 7.9 points to 96.4 with the income subcomponent up sharply. Strength in expectations for future income points to a combination of strength in the jobs market, the stock market, and also the positive effect of lower gasoline prices. Inflation expectations, reflecting lower gas prices, are steady at 5.0 percent which is very low for this reading.

Another positive in the report is a jump in vehicle buying plans in yet another indication of consumer confidence. Nevertheless, readings on consumer spirits, including this report, have been far outstripping actual gains in underlying consumer spending, at least so far.

Market Consensus Before Announcement
The Conference Board's consumer confidence index for December rose 1.6 points to 92.6 which, outside of October's 94.4, and is the strongest reading of the recovery. November's index was revised 2.3 points higher to 91.0. The current conditions component of the index was up 5.1 points to 98.6, a convincing gain and a recovery best. The jobs-hard-to-get subcomponent showed special strength, at 27.7 percent vs November's 28.7 percent. Showing less punch was the expectations component which fell 8 tenths to 88.5. Weakness here, in contrast to the strength of the current jobs assessment, reflects pessimism in the jobs outlook where 16.9 percent see fewer jobs ahead versus 14.7 percent who see more opening up.

The Conference Board compiles a survey of consumer attitudes on the economy. The headline Consumer Confidence Index is based on consumers' perceptions of current business and employment conditions, as well as their expectations for six months hence regarding business conditions, employment, and income. Three thousand households across the country are surveyed each month.

The Conference Board changed its polling company in 2010. The current polling company is Nielsen Co. with the former being TNS Inc. The switchover reference month for the new data is November 2010. Because of the change in the polling service (even though the questions in the questionnaire are the same) the data are not completely consistent and November 2010 should be considered a break in the series. In general, while the level of consumer confidence is associated with consumer spending, the two do not move in tandem each and every month.

The pattern in consumer attitudes can be a key influence on stock and bond markets. Consumer spending drives two-thirds of the economy and if the consumer is not confident, the consumer will not be willing to pull out the big bucks. Confidence impacts consumer spending which affects economic growth. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Consumer confidence did shift down in tandem with the equity market between 2000 and 2002 and then recovered in 2003 and 2004. In 2008 and 2009, the credit crunch and past recession led confidence downward with consumer spending contracting in tandem. More recently during the economic recovery, consumer confidence has edged back up but has been outpaced by improvement in spending.

Since consumer spending accounts for such a large portion of the economy, the markets are always eager to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. It's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.