The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through August 18th. The 44.5 reading is significantly below the consensus estimate of 52.0, reported by Briefing.com, and a sharp decline from the July downward revision to 59.2 (from 59.5).
Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer confidence deteriorated sharply in August, as consumers grew significantly more pessimistic about the short-term outlook. The index is now at its lowest level in more than two years (April 2009, 40.8). A contributing factor may have been the debt ceiling discussions since the decline in confidence was well underway before the S&P downgrade. Consumers’ assessment of current conditions, on the other hand, posted only a modest decline as employment conditions continue to suppress confidence.”
Consumers’ appraisal of present-day conditions weakened further in August. Consumers claiming business conditions are “bad” increased to 40.6 percent from 38.7 percent, while those claiming business conditions are “good” inched up to 13.7 percent from 13.5 percent. Consumers’ assessment of employment conditions was more pessimistic than last month. Those claiming jobs are “hard to get” increased to 49.1 percent from 44.8 percent, while those stating jobs are “plentiful” declined to 4.7 percent from 5.1 percent.
Consumers’ short-term outlook deteriorated sharply in August. Those expecting business conditions to improve over the next six months decreased to 11.8 percent from 17.9 percent, while those expecting business conditions to worsen surged to 24.6 percent from 16.1 percent. Consumers were also more pessimistic about the outlook for the job market. Those anticipating more jobs in the months ahead decreased to 11.4 percent from 16.9 percent, while those expecting fewer jobs increased to 31.5 percent from 22.2 percent. The proportion of consumers anticipating an increase in their incomes declined to 14.3 percent from 15.9 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 27 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 44.5 is dramatically below the 83.0 of the current regression level (46.4% below, to be precise).
It is interesting that the consumer confidence pattern of the past 27 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 1st percentile of all the monthly readings since the start of this data series in June 1977 and at the zero percentile of all the non-recessionary months. Only six 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.