The latest Conference Board Consumer Confidence Index was released this morning based on data collected through Jan. 17. The 58.6 reading was well off the consensus estimate of 58.6 reported by Briefing.com. Today's number is a steep decline from the interim high of 73.1 in October. The higher preliminary reading for December of 65.1 was revised up to 66.7.
Here is an excerpt from the Conference Board report:
Says Lynn Franco, Director of Economic Indicators at The Conference Board: Consumer Confidence posted another sharp decline in January, erasing all of the gains made through 2012. Consumers are more pessimistic about the economic outlook and, in particular, their financial situation. The increase in the payroll tax has undoubtedly dampened consumers' spirits and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock.
Consumers' appraisal of current conditions deteriorated in January. Those claiming business conditions are 'good' declined to 16.7 percent from 17.2 percent, while those stating business conditions are 'bad' increased to 27.4 percent from 26.3 percent. Consumers' assessment of the labor market has also grown more negative. Those saying jobs are 'plentiful' declined to 8.6 percent from 10.8 percent, while those claiming jobs are 'hard to get' increased to 37.7 percent from 36.1 percent.
Consumers' optimism about the short-term outlook continued to deteriorate in January. Those expecting business conditions to improve over the next six months declined to 15.4 percent from 18.1 percent. However, those expecting business conditions to worsen declined slightly to 20.6 percent from 21.1 percent.
Consumers' outlook for the labor market was more pessimistic. Those anticipating more jobs in the months ahead declined to 14.3 percent from 17.9 percent, while those expecting fewer jobs remained virtually unchanged at 27.0 percent. The proportion of consumers expecting their incomes to decline rose to 22.9 percent from 19.1 percent, while those anticipating an increase declined to 13.6 percent from 15.6 percent. (press release)
The Recessionary Mindset
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 monthly data series, which dates from June 1977. The latest number has fallen far below the 69.4 average confidence of recessionary months.
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 a far more revealing gauge of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference. Today's reading of 58.6 is mind-numbing 26.0% below the current regression level of 79.2.
It is interesting that the consumer confidence pattern since the NBER declared end to the recession is similar to the 36-month pattern following the 1990-91 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 a great extent, Consumer Confidence is a proxy for unemployment problems. The rise in confidence earlier this year had been concurrent with an improvement in the monthly unemployment numbers. The subsequent decline in confidence over the past few months underscored the Conference Board's findings of a gloomier outlook for the labor market. Perhaps the more recent surveys point to another trend reversal.
On a percentile basis, the latest reading is at the 20.4 percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 11.9 percentile of non-recessionary months. For an additional 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 only partially recovered since the official end to the recession in June 2009.