US: Consumer Confidence

Tue Jan 30 09:00:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 123.6 120.0 to 125.1 125.4 122.1 123.1

Consumer confidence moved back higher in January to 125.4 from an upward revised 123.1 in December and is just off November's 17-year high at 128.6. January's strength is centered in a gain for the expectations component which rose nearly 5 points to 105.5 to offset a modest slip in the present situation component which fell just over 1 point to 155.3. Part of the decline in the present situation is a small 4 tenths rise in those who say jobs are hard to get which at 16.4 percent remains very low and very favorable and won't be upsetting expectations for a strong employment report on Friday.

A negative in the report is continued weakness in inflation expectations where the 1-year outlook is down 2 tenths to 4.6 percent which for this reading is very low. In what could also be a negative, at least for contrarians, is a surge in stock-market bullishness with 51.6 percent saying the market will increase over the next year which is up more than 5 percentage points in the month.

But the consumer confidence index has in fact been tracking the stock market higher over the last year, in some contrast to the rival consumer sentiment index which has been flattening out. But today's report is another reminder that a strong jobs market is the solid foundation for the American consumer.

Market Consensus Before Announcement
Consumer confidence in January is expected to come in at 123.6 and up from December's dip to 122.1 which, however, did not reflect any slowing at all in current conditions or the assessment of the current labor market. This report rose steadily last year to 17-year highs in sharp contrast to the consumer sentiment report which has been flattening out.

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.