US: Consumer Confidence

Tue Feb 27 09:00:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 126.4 124.1 to 129.5 130.8 125.4 124.3

Market volatility or not, new long-term highs are the continuing story of the consumer confidence index which jumped to 130.8 in February to easily beat Econoday's consensus and also top the high estimate. Only 14.7 percent of the sample say jobs are currently hard to get which is down noticeably from 16.3 percent in January and points to acceleration for the February employment report. The sample's outlook for the labor market also continues to rise with 21.6 percent, nearly 3 percentage points higher than January, seeing more jobs opening up six months from now.

Market gyrations however are taking their toll on the sample's bullishness with only 41.3 percent now seeing stocks moving higher over the next six months for a nearly 10 point monthly decline. The bears are now at 27.4 percent, which is up nearly 7 points.

Inflation expectations are up 1 tenth to 4.7 percent which, however, is very subdued for this reading. A look at component readings shows similar strength between the present assessment and the future outlook, at 162.4 for a 7.7 point gain and 109.7 for a 5.7 point gain, respectively.

Enormous strength in consumer confidence has been a standout feature of the economic data, in some contrast however with consumer spending where strength has been tangible but more limited. If the stock market begins to calm down, it will be interesting to see whether this report actually begins to accelerate further. Watch on Friday for final February consumer sentiment data which, though running less hot than this report, did jump sharply at mid-month.

Market Consensus Before Announcement
Consumer confidence in February is expected to come in at 126.4 vs January's very strong 125.4. The assessments of the labor market and income expectations have been very strong in this report as has bullishness in the stock market.

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.