US: Consumer Confidence

Tue Oct 27 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 102.5 100.0 to 106.0 97.6 103.0 102.6

A decline in the assessment of the current jobs market pulled down the consumer confidence index to a lower-than-expected 97.6 in October. This is 2.4 points below Econoday's low-end forecast and 5.0 points below a revised September.

Consumers are saying there are fewer jobs available then there were in September and more say jobs are hard to get. But the latter reading, at 25.8 percent, is still low and consistent with low rates of unemployment. Still, these readings are weaker than September and helped pull down the present situation component by a sizable 8.2 points to 112.1.

The six-month outlook shows much less monthly weakness compared to September with the component down 2.8 points to 88.0. Buying plans are mixed with cars down but both houses and appliances up. Inflation expectations are steady at 5.1 percent which is moderate for this reading.

Jobs are at the heart of consumer confidence and today's report will limit expectations for strength in the October employment report. This report may also limit expectations for retail sales in October including, based on buying plans, sales of vehicles.

Market Consensus Before Announcement
Despite expectations for a pull back, the consumer confidence index has been posting a series of very strong readings that have been immune to troubles in foreign demand or global financial markets. Job readings have been unusually strong in this report but have yet to be confirmed by strength in government job data. The Econoday consensus for October is calling for only a 1/2 point decline to a still very positive 102.5.

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.