Photo: Jason Toney via Flickr
Yesterday’s consumer confidence reading missed expectations by a wide margin. The headline number of came in at 39.8 versus the expectation for 46.However, in a note to clients today, Deutsche Bank thinks you shouldn’t worry too much about it because consumers’ actual spending activity has been telling a totally different story.
From the note:
The recent further decline in consumer confidence was unwelcome economic news. (October confidence fell to a post-recession low of 39.8 from 46.4 previously.) However, we are inclined to marginalize the importance of the confidence news, because there has been a break between what consumers are saying and what they are doing over the past few months. Over broad periods of time, consumer confidence is a useful forecasting tool of consumer spending. The correlation between the two series is approximately 75% over the last 25 years. However, there have been notable occasions in which a sharp break has occurred between confidence and spending, specifically the periods shortly after the recessions of 1990-91 and 2001… A similar divergence appears to be occurring at present: confidence has declined by 26 points over the past six months, but consumer spending has continued to expand at a decent pace. Retail sales were up 7.9% year-on-year in September, and unit motor vehicle sales are running at the fastest pace since April, when the Japan earthquake disrupted supplies. We would become more concerned about the level of confidence if there was evidence of a consumer retrenchment, but the latest weekly retail data suggest this is not the case. Two key metrics of same store sales reported gains of +2.4% and +4.1% in the latest week (compared to year-ago levels), and this is consistent with further forward momentum for consumers. In short, the divergence between attitudes and spending continues.