US: Consumer Confidence

Tue Apr 25 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 123.1 119.0 to 126.0 120.3 125.6 124.9

The consumer confidence index eased back to 120.3 in April vs a revised 124.9 in March with these two months the best of the 8-year expansion. Readings remain strongly favorable including jobs-hard-to-get which is steady at a very low 19.1 percent and points to strength for the April employment report.

Inflation expectations are unchanged at 4.7 percent which for this reading is unusually low and continues to stand in contrast to the overall strength. Looking at the headline's 2 components, the present situation decreased slightly from 143.9 to 140.6 while expectations declined from 112.3 last month to 106.7.

One clear negative is a decline among those who see their income rising in the future, down a sizable 3.2 percentage points to 19.3 percent. This hints at a peaking of confidence in the jobs market and perhaps the outlook for the stock market as well.

But two building blocks for the consumer are solidly in place: unemployment is low and the housing market is accelerating. Wages, however, are soft and until they begin to show traction, further gains in confidence may be limited.

Market Consensus Before Announcement
Increasingly upbeat assessments of the labor market along with positive expectations for rising incomes have been fueling the strongest run in consumer confidence since the dotcom days of irrational exuberance. Acceleration in this index has far surpassed acceleration in the rival consumer sentiment index and has beaten the Econoday consensus in 4 of the last 5 month. Forecasters see the consumer confidence index retracing some of its gains in April, at a consensus 123.1 vs March's 125.6.

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. 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.