US: Consumer Confidence

Wed Dec 27 09:00:00 CST 2017

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 128.0 126.0 to 130.0 122.1 129.5 128.6

After posting back-to-back 17-year highs, the consumer confidence index cooled slightly in the December report, to 122.1 vs a revised 128.6 in November and 126.2 in October. But very importantly the cooling doesn't include the assessment of the current jobs market where only 15.2 percent say jobs are hard to get vs 16.8 and 17.1 percent in the prior two months. This reading is closely watched and will confirm expectations for another strong monthly employment report (which will be next week's economic highlight).

Strength in other readings eased especially the assessment of the future job markets where optimists fell nearly 2 percentage points to 18.4 percent and pessimists rose more than 4 points to 16.3 percent. Other details include a gain for those seeing their income rising which is offset however by an increase among those who see their income falling.

But it's the strength of the jobs-hard-to-get reading that dominates this report and more than offsets slowing in other readings.

Market Consensus Before Announcement
Consumer confidence, at 129.5, is coming off a 17-year high in November when assessments of employment, income expectations and the stock market were all once again unusually strong. The Econoday consensus is calling for 128.0 in December.

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.