US: Consumer Confidence

Tue Jun 30 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 97.4 94.5 to 99.0 101.4 95.4 94.6

June consumer confidence confirms last week's consumer sentiment report, that spirits -- and especially expectations -- are rising to their strongest levels of the recovery. The consumer confidence index jumped nearly 7 points to a 101.4 level that easily surpasses the Econoday high estimate for 99.0.

The report's expectations component, like that of the consumer sentiment report, is a standout, surging 8.2 points to 94.6 and reflecting significant optimism over the outlook for jobs and the outlook for income. The report's present situation component is also strongly positive, up 4.5 points to 111.6 in a gain that hints at month-over-month strength for consumer spending in June. Here, importantly, the gain reflects specific strength in the consumer's assessment of the current jobs market where sizably fewer, at 25.7 percent vs May's 27.2, describe jobs as hard to get.

This report is solid throughout including buying plans for autos which, after an absolute sales spike in May, show another major gain for June. Buying plans for homes are steady at a solid rate. Inflation expectations are very quiet at 5.1 percent which is low for this report.

The Federal Reserve has repeatedly cited consumer confidence readings as strong positives for the economic outlook. Confidence readings, boosted most by low unemployment, first broke out higher at the beginning of the year well in advance of what eventually would become a spring rise for retail sales.

Market Consensus Before Announcement
Econoday's 97.4 consensus for consumer confidence is very strong and would return the index back near recovery highs set earlier in the year. Keep an eye out for the expectations component which posted a record gain in last week's 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.