US: Consumer Confidence

Tue Apr 26 09:00:00 CDT 2016

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 96.0 92.5 to 98.1 94.2 96.2 96.1

A big drop in jobs-hard-to-get, which hints at strength for April's employment report, headlines an otherwise soft consumer confidence report for April. Confidence slipped more than 2 points to 94.2 which is roughly in line the 6-month trend. But jobs-hard-to-get, at only 22.7 percent, is down 2.5 percentage points from March for the lowest reading since August. The gain for this reading gave a lift to the present situation component which rose 1.5 points to 116.4.

Weakness in the report is centered in the expectations component which fell 4.3 points to 79.3. This is near February's 79.9 and the lowest score since November 2013. Here, in contrast to the assessment of the current jobs market, there's outright pessimism with 17.2 percent seeing fewer jobs ahead vs only 12.2 percent seeing more ahead. Optimists, at 15.9 vs 11.2 percent, are still ahead in income expectations but this is a very narrow spread for this key reading.

Buying plans are all lower led by housing. Inflation expectations are steady at 4.8 percent which, however, is also very low for this reading.

The consumer has been sputtering so far this year, not getting any help from weak wage gains nor, perhaps, from uncertainty tied to the presidential campaign. Still, the improvement in jobs-hard-to-get is sizable and will no doubt raise talk of another solid employment report.

Market Consensus Before Announcement
The University of Michigan's consumer sentiment index broke lower in mid-April and no improvement is expected for the April edition of the Conference Board's consumer confidence index which forecasters see down 2 tenths at a consensus 96.0. Lack of wage traction is a definite negative for consumer spirits and the political climate may also be one. Inflation expectations, like in other reports, are very subdued and have been a subject of top concern for Federal Reserve policy makers who are trying to lift prices. Spring is a key season for the economy and weakness in confidence won't be lifting expectations for the consumer or housing sectors.

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.