US: Consumer Confidence

Tue Mar 31 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 95.5 93.0 to 98.2 101.3 96.4 98.8

Consumer spending may be flat but not consumer confidence which jumped to 101.3 in March from an upwardly revised 98.8 in February. March's reading is close to January's 7-1/2 year high of 103.8.

March's gain is centered entirely in the expectations component which is up 6.0 points to 96.0. This is the best reading for this component since February 2011 and reflects expected gains in income and the jobs market.

A negative, however, is the present situation component which fell 3.0 points to 109.1. Weakness here reflects a slight rise in the jobs-hard-to-get reading, which is a marginally negative indication for Friday's March employment report, and also a rise in those describing current business conditions as bad. Still, those describing conditions as bad, at 19.4 percent, are well outnumbered by those describing conditions as good, at 26.7 percent.

But there is another negative in today's report and that's a sizable downtick in those planning to buy a house in the next six months, offset in part by a rise in car buying plans. Inflation expectations rose 2 tenths to 5.2 percent reflecting the current rise in gas prices. Still, 5.2 percent is low for this reading.

Though the drop in the present situation component does point to weakness in consumer activity relative to February, readings in this report are mostly favorable, and decidedly favorable. The strength of the jobs market has yet to trigger a surge in consumer spending but it is giving a definitive boost to consumer spirits.

Market Consensus Before Announcement
The Conference Board's consumer confidence index fell 7.4 points in February to 96.4 from a revised 103.8 in January which was a 7-1/2 year high. The dip was centered in the expectations component which fell a very steep 9.8 points to 87.2. The second main component, present situation, also dipped but less severely, down 2.7 points to 110.2.

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.