US: Consumer Confidence

Tue Nov 24 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 99.6 96.2 to 102.0 90.4 97.6 99.1

Lack of confidence in the outlook for the jobs market sank the consumer confidence index in November, which fell to 90.4 vs a revised 99.1 in October. The November reading is far under expectations and is the lowest since September last year. Expectations, one of two main components in this report, fell more than 10 points to 78.6 which is the lowest reading since February last year. The employment subcomponent here shows fewer consumers seeing jobs opening up six months from now and more seeing fewer jobs ahead.

The present situation component shows less weakness, down 6.5 points to 108.1 which is the lowest reading since only July. Here the employment subcomponent also shows weakness but nothing dramatic, with 26.2 percent saying jobs are hard to get which is up from October's 24.6 percent but still respectable. But those describing jobs as currently plentiful showed more noticeable deterioration, at 19.9 percent vs October's 22.7 percent.

A plus in the report is a jump in buying plans for autos, at 12.4 percent vs October's 9.8 percent in a reading that hints at renewed acceleration for the motor vehicle component of the government's retail sales report. A negative is a dip in home buying plans, to 5.6 percent from 6.2 percent. Other readings include a 1 tenth dip in inflation expectations to 5.0 percent which, for this particular reading, is actually subdued but nothing dramatic.

But the decline in job expectations is dramatic and raises the question whether global effects, which have been negative for the U.S., are beginning to weigh on the American consumer -- which would not be a positive for the holiday spending outlook.

Market Consensus Before Announcement
The consumer confidence index had been peaking going into the fall but fell back a sharp 5.0 points in October, to a 97.6 reading that the Econoday consensus sees partially reversed with a 2-point gain to 99.6 for November. Assessments of the jobs market in this report are always very closely watched and the consensus is hinting at month-to-month improvement for the November employment 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.