US: Consumer Confidence

Tue Mar 29 09:00:00 CDT 2016

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 94.0 91.9 to 96.0 96.2 92.2 94.0

Lack of wage gains and the exaggerated political climate have yet to dent consumer spirits as consumer confidence is holding firm, at a solid 96.2 in March. An initial drop in February had raised concerns but less so now, not only following the gain in March but also with a 1.8 point upward revision to February to a more respectable 94.0.

A negative in the March data is the closely watched jobs-hard-to-get subcomponent which isn't pointing to strength for Friday's employment report, rising a very sharp 3.0 percentage points to 26.6 percent. An offset, however, is a 2.6 percentage point rise in those describing jobs as plentiful to 25.4 percent. Another offset is the consumer's 6-month outlook on the jobs market with slightly more seeing jobs opening up and slightly fewer seeing less jobs ahead. The future income assessment is stable and favorable as are the assessments of business conditions.

Buying plans are mixed with autos down but with housing stable and appliances up. Inflation expectations are steady at 4.7 percent which is very subdued for this reading, one that won't please Federal Reserve policy makers who are trying to pull inflation higher.

This report isn't gangbusters but it is solid and should help take the edge off of yesterday's disappointing data on personal spending.

Market Consensus Before Announcement
The consumer confidence index is expected to bounce nearly 2 points higher in March to 94.0, a respectable level but down from brief peaks over 100 last year. Job and income expectations have been holding up well in this report though buying plans fell sharply in the February report. Inflation expectations, which may go up based on this month's rise in pump prices, are a chief concern right now for Federal Reserve policy makers.

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.