US: Consumer Confidence

Tue Mar 27 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 131.0 128.3 to 132.2 127.7 130.8 130.0

The consumer confidence index, at 127.7, eased back slightly in March but remains very strong especially the assessment of the labor market where only 14.9 percent say jobs are hard to get. This is closely watched by forecasters and the reading, which is down 2 tenths from an already strong February, will firm expectations for yet another favorable monthly employment report.

This year's tax cut has been offsetting trouble in the stock market and continues to support confidence readings. Yet confidence in stocks is eroding with only 35.4 percent of the sample seeing year-ahead gains for the market vs 40.1 percent in February and a peak of 51.0 percent in January when the sell-off first hit.

Other readings include a downtick in inflation expectations, now at 4.6 percent after having shown hints of life in prior months. Buying plans are soft especially for homes which are at only 5.5 percent, down a couple of percentage points over the past couple of months which hints at slowing ahead for the housing market.

Today's report is less upbeat than prior months but not the assessment of the labor market which is a central positive that does overshadow the spots of softness.

Market Consensus Before Announcement
This year's tax cut has far offset any concerns over stock market volatility for the consumer confidence report. Income expectations have been solid and the assessment of the labor market strong. And another month of exceptional strength is the call for March, at a consensus 131.0 vs February's 130.8.

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.