US: Consumer Confidence

January 31, 2017 09:00 CST

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 112.2 110.0 to 114.0 111.8 113.7 113.3

Consumer confidence held strong and steady in January, at 111.8 for only a slight decrease from December's 15-year high of 113.3 (revised). Details are positive including a noticeable decline in those saying jobs are hard to get right now, at 21.5 percent vs December's 22.7 percent, combined with a solid rise in those who say jobs are plentiful, at 27.4 vs 26.0 percent.

But the outlook is less upbeat with more saying there will be fewer jobs 6 months from now and fewer saying there will be more. Confidence in income prospects is also down.

And there are red flags in the details, including a nearly 2 percentage point drop in buying plans for autos. This suggests that auto demand, after several months of very strong sales, may have understandably flattened. Home sales have been less strong than auto sales, but here too buying plans are down sharply.

Good news comes from inflation expectations which, after sinking in December to 4.5 percent which is very low for this reading, bounced back 4 tenths to 4.9 percent for the strongest showing since September.

Life in price expectations is a positive but whether there's too much life in consumer confidence, that is unsustainable strength, is another question. So far strong post-election confidence hasn't resulted in much economic pop as, outside of auto sales, actual growth in production and spending has been moderate.

Market Consensus Before Announcement
The Conference Board's consumer confidence index has easily beat expectations the last two reports, by more than 6 points in December and more than 5 points in November. Forecasters are calling for an edging back in January to 112.2 from February's 113.7 in what would mark a topping out in the post-election run. Despite the enormous strength in confidence, recent strength in consumer spending has been limited.

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.