US: Consumer Confidence

Tue Jun 26 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
Consumer Confidence - Level 128.1 125.8 to 130.0 126.4 128.0 128.8

Tariffs may now be denting consumer expectations based on the consumer confidence index which dipped 2.4 points in June to 126.4 to come in at the low end of expectations. The softening is centered in the expectations component which fell 4.0 points to 103.2 and where the sub-component for income expectations shows fewer optimists, 18.8 vs 21.4 percent in May, and more pessimists at 8.7 vs 8.0 percent.

But levels are still very strong in this report and the current condition index, which offers hints at near-term consumer activity, held nearly unchanged at 161.1. The consumers' assessment of the June labor market is mixed with those saying jobs are plentiful down 2.1 percentage points to 42.1 percent offset by those saying jobs are hard-to-get, declining 7 tenths to 14.9 percent.

The immediate implications of today's report are quite favorable, pointing to a solid month for consumer spending, but the longer-term outlook is perhaps beginning to erode. Other readings in today's report show no change for year-ahead inflation expectations at 4.9 percent (which is moderate for this reading) and another rise in stock market bulls, up 4.0 percentage points to a sizable 42.4 percent vs 23.5 percent for the bears.

Market Consensus Before Announcement
Econoday's consensus, at 128.1 in May, is calling for steady strength at a high level for the June consumer confidence index. Job assessments, both current and future, have been extraordinarily strong in this report.

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.