The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through October 13th. The 39.8 reading is significantly below the consensus estimate of 46, reported by Briefing.com, and a stunning decline from the September score of 46.4 (an upward revision from 45.2). It is, in fact, the lowest non-recession reading of all time.
Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of The Conference Board Consumer Research centre: “Consumer confidence is now back to levels last seen during the 2008-2009 recession. Consumer expectations, which had improved in September, gave back all of the gain and then some, as concerns about business conditions, the labour market and income prospects increased. Consumers’ assessment of present-day conditions did not fare any better. The Present Situation Index posted its sixth consecutive monthly decline, as pessimism about the current economic environment continues to grow.”
Consumers’ appraisal of present-day conditions deteriorated further in October. Those claiming business conditions are “bad” increased to 43.7 per cent from 40.5 per cent, while those claiming business conditions are “good” decreased to 11.0 per cent from 12.1 per cent. Consumers’ assessment of the labour market was also less favourable. Those claiming jobs are “plentiful” decreased to 3.4 per cent from 5.6, however, those saying jobs are “hard to get” decreased to 47.1 per cent from 49.4 per cent.
Consumers’ short-term outlook, which had improved last month, reversed course in October. Those expecting business conditions to improve over the next six months decreased to 9.1 per cent from 11.8 per cent, while those expecting business conditions to worsen edged down to 21.5 per cent from 21.9 per cent. Consumers’ outlook for the job market was slightly more pessimistic. Those anticipating more jobs in the months ahead edged down to 11.3 per cent from 11.9 per cent, while those expecting fewer jobs decreased to 27.4 per cent from 28.6 per cent. The proportion of consumers anticipating an increase in their incomes declined to 10.3 per cent from 13.5 per cent. 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 39.8 is dramatically below the 81.9 of the current regression level (51.4% below, to be precise).
It is interesting that the consumer confidence pattern of the past 29 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 all-time low of non-recessionary months. Only five months in the entire history of this indicator, all during the Financial Crisis recession, have been lower than the latest consumer confidence 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.
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