Consumer Confidence is Stuck on Freud’s Couch
The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through September 15th. The 45.4 reading is below the consensus estimate of 46.6, reported by Briefing.com, and virtually unchanged from the August score of 45.2 (a slight upward revision from 44.5).
Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of The Conference Board Consumer Research Center: “The pessimism that shrouded consumers last month has spilled over into September. Consumer expectations, which had plummeted in August, posted a marginal gain. However, consumers expressed greater concern about their expected earnings, a sign that does not bode well for spending. In addition, consumers’ assessment of current conditions declined for the fifth consecutive month, a sign that the economic environment remains weak.”
Consumers’ assessment of current conditions weakened further in September. Those claiming business conditions are “good” decreased to 11.7 percent from 14.1 percent, while those claiming business conditions are “bad” remained virtually unchanged at 40.4 percent. Consumers’ appraisal of employment conditions, however, was mixed. Those claiming jobs are “hard to get” increased to 50.0 percent from 48.5 percent, while those stating jobs are “plentiful” increased to 5.5 percent from 4.8 percent.
Consumers’ short-term outlook, which had deteriorated sharply last month, improved slightly in September. Those expecting business conditions to improve over the next six months decreased to 11.3 percent from 11.8 percent, while those expecting business conditions to worsen declined to 22.6 percent from 24.6 percent. More…
The Sobering Historical Context
Let’s take a step back and put Lynn Franco’s interpretation in a larger perspective. The table here shows the average consumer confidence levels for each of the five recessions during the history of this data series, which dates from June 1977. The latest number is above the bottom of the unprecedented trough in 2008, but it is far below the average confidence level of recessions a full 28 months after the end of the Great Recession (based on the official call of the National Bureau of Economic Research).
The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy. Toward this end I have highlighted recessions and included GDP. The linear regression through the index data shows the long-term trend and highlights the extreme volatility of this indicator. Statisticians may assign little significance to a regression through this sort of data. But the slope clearly resembles the regression trend for real GDP shown below, and it is probably a more revealing indicator of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference. Today’s reading of 45.4 is dramatically below the 82.5 of the current regression level (45.0% below, to be precise).
It is interesting that the consumer confidence pattern of the past 28 months following the NBER declared end to the recession is similar to the 36-month pattern following the 1990-1991 recession, although the current pattern has so far been at a lower confidence level. At an even higher level, there was also a two year period following the 2001 recession where confidence lagged. A common factor in all three cases is a “jobless recovery”. To great extent Consumer Confidence is a proxy for unemployment problems.
On a percentile basis, the latest reading is at the 2nd percentile of all the monthly readings since the start of this data series in June 1977 and at the 0.2 percentile of all the non-recessionary months. Only seven months in the entire history of this indicator, all during the Financial Crisis, have been lower than the August number.
For a confirming perspective on consumer attitudes, see my post on the most recent Reuters/University of Michigan Consumer Sentiment Index. Here is the chart from that post.
And finally, let’s take a look at the correlation between consumer confidence and small business sentiment, the latter by way of the National Federation of Independent Business (NFIB) Small Business Optimism Index. As the chart illustrates, the two have been closely correlated since the onset of the Financial Crisis.
The NFIB index has been less volatile than the Conference Board Consumer Confidence Index, but it has likewise remained depressed despite the official end to the recession in June 2009.
Doug Short Ph.d is the author of dshort.com.