US: Consumer Confidence

Tue May 26 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 95.1 91.0 to 98.0 95.4 95.2 94.3

After having spiked at the beginning of the year, consumer confidence is stabilizing at a solid level, at 95.4 for May which is just above the Econoday consensus for 95.1. Income expectations are up slightly and buying plans are all higher including for autos, homes, and especially for appliances.

Job readings are mixed with the assessment of the current market down as more, now 27.3 percent vs April's 25.9 percent, describe jobs as currently hard to get. This reading is closely watched and will, to a small degree, limit expectations for the May employment report. But disappointment here is offset by the six-month outlook which is more favorable.

Readings in this report remain consistent with the FOMC's description of consumer confidence back in April, that it's running at an historically high level. Yet this strength has yet to translate to much strength for retail spending which has been soft. Watch for consumer sentiment on Friday's Econoday calendar, a report that is expected to bounce back from an odd plunge at mid-month.

Market Consensus Before Announcement
The consumer confidence index has been holding up though is off its highs earlier in the year. Forecasters, at a consensus 95.1, see little change from April's 95.2, but there might be some downward risk to this report given the mid-month plunge in the consumer sentiment report.

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.