US: Consumer Confidence

Tue Sep 29 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 96.0 88.5 to 100.0 103.0 101.5 101.3

Consumer confidence was supposed to have fallen back this month as stock market losses took their effect. But instead confidence is inexplicably rising, to 103.0 in September which is 7 points over the consensus and 3 points over the top estimate. The gain is centered in the present situation component which hints at ongoing strength in the labor market and immediate strength in consumer spending. The present situation jumped more than 5 points to 121.1 which is, by far and away, the best reading of the recovery, since September 2007.

The consumer's assessment of the current jobs market is very strong. Those describing jobs as hard to get is at 24.3 percent, which is low for this reading, while those describing jobs as plentiful is at 25.1 percent which is high for this reading. On current business conditions, 28.0 percent describe them as good, again a strong reading, with only 16.7 percent as bad for another sign of strength.

The expectations side of the report is solid but less spectacular with the component at 91.0 for a 6 tenths decline from August. The most striking reading in this group is expectations for future income where 19.1 percent see an increase for a nearly 3 percentage point gain from August which is very strong.

Buying plans show special strength for homes where indications are the highest since November and also strength for cars which are at their best since March. This latter reading is very impressive given how strong car sales have been this year and it points to strength for Thursday's motor vehicle sales.

For prices, all this strength may be offsetting the drop underway at the gasoline pump. Inflation expectations rose a sharp 3 tenths to 5.2 percent which is the highest reading since March.

No other gauge on the consumer's mood has shown this intensity of strength the last two months. Confidence isn't exactly the same as spending but FOMC policy makers believe it's a positive indication. If Friday's employment report proves as strong as the current assessment in this report, then the odds of a rate hike for the October FOMC would certainly look favorable.

Market Consensus Before Announcement
The consumer confidence report showed odd strength in August at 101.5 for a 10.5 point surge, boosted especially by unusual strength in the assessment of current job conditions. Forecasters see the index coming back sharply from August, to a consensus of 96.0. A decline for this index would be seen, at least to a degree, as a correction from the prior month's outsized gain and less perhaps as a material decline in confidence.

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.