Consumer Confidence Beats Expectations, But Remains At Recession Levels

by: Doug Short

The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through April 18. The 68.1 reading was well above the consensus estimate of 61.0 reported by Briefing.com. Today's number is a bounce off March's 59.7 back to essentially the February level of 68.0. In fact, the last five months have seen a regular month-over-month oscillation since December: 66.7, 58.4, 68.0, 59.7, 68.1.

Here is an excerpt from the Conference Board report:

Says Lynn Franco, Director of Economic Indicators at The Conference Board: "Consumer Confidence improved in April, as consumers' expectations about the short-term economic outlook and their income prospects improved. However, consumers' confidence has been challenged several times over the past few months by such events as the fiscal cliff, the payroll tax hike and the sequester. Thus, while expectations appear to have bounced back, it is too soon to tell if confidence is actually on the mend."

Consumers' assessment of current conditions improved moderately in April. Those saying business conditions are "good" increased to 17.2 percent from 16.4 percent, while those stating business conditions are "bad" decreased to 28.1 percent from 29.1 percent. Consumers' assessment of the labor market was mixed. Those claiming jobs are "plentiful" edged up to 9.8 percent from 9.5 percent, however those claiming jobs are "hard to get" increased to 37.1 percent from 35.4 percent.

Consumers were considerably more upbeat about the short-term outlook. The percentage of consumers expecting business conditions to improve over the next six months increased to 16.9 percent from 15.0 percent, while those anticipating business conditions to worsen decreased to 15.1 percent from 17.7 percent.

Consumers' outlook for the labor market was also more positive. Those expecting more jobs in the months ahead improved to 14.2 percent from 13.0 percent, while those expecting fewer jobs decreased to 22.4 percent from 26.0 percent. The proportion of consumers expecting their incomes to increase rose to 16.8 percent from 14.6 percent, while those expecting a decrease declined to 16.0 percent from 17.7 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 continues to reflect a recessionary mindset. It is a little over a point below the average confidence of recession 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 68.1 is 13.4% below the current regression level of 78.7.

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On a percentile basis, the latest reading is at the 23.4 percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 18.0 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.

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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.

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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.