The Consumer Confidence Survey is conducted monthly under the auspices of The Conference Board, Inc. Unlike what many touts with an axe to grind would lead you to believe, The Conference Board is not a government agency. It is a nearly 100 year old business organization supported by business executives. It conducts business management research as a non-profit organization with some 1300 corporate members in more than 50 countries. It also conducts conferences that feature authorities on a variety of economic and management issues.
The Conference Board researches and produces, among other reports, the Leading Economic Indicators for the US, the UK, the Euro Area, France, Germany, Spain, Japan, Korea, China, Mexico and Australia. It also produces the Consumer Confidence Index, the CEO Confidence index, the Help Wanted Online Data Series, and other major indicators that have an impact on both business and the financial markets.
For its monthly Consumer Confidence Survey, The Conference Board has selected The Nielsen Company (NLSN) to collect their survey data. You may know Nielsen as an international information and measurement company – if not, you probably know them from their “Neilsen Ratings” that determine, in large part, what shows television audiences are watching and what shows they are merely passing by in search of a good commercial.
So why should you care? First, “consumer confidence,” measured over time, gives a strong clue as to the direction of the markets, the economy and the country. Reviewing changes in consumer confidence often tells us the plans and expectations of consumers well before their buying shows up as earnings in the sectors and companies they will be buying from. And second, paradoxically, it can also serve as a negative indicator; when consumer confidence is at unusually low points, the pessimism is often overdone. When it reflects unbridled optimism, it often presages a market correction. So where do we stand today?
The latest Consumer Confidence Index (CCI), the final “one number” that the survey measures, is at 65.6, The “benchmark” of 100 was set in 1985, a period of optimism after a terrible stagnant market and a bout of economic stagflation in the 1970s and early 1980s. Today, anything above 50 is considered “exuberant” and is an indicator used by a number of technicians to gauge frothy investor sentiment. Investor sentiment is always too bullish near market tops, and too bearish near market lows. The CCI was at an extremely bearish level of 26 even by the end of March 2009, rising 7/10ths of a point from February’s 25.3. Clearly most investors were convinced the economy and the markets could only go lower. It was at 99.5, however, back in September of 2007 – just before the deluge of selling hit. It is now at exuberant levels of bullishness and confidence; most are now convinced the market can only go higher.
One of the problems with taking our cues from the contributors to SA is that they tend to be more sophisticated analysts and the audience of readers is both more sophisticated and more affluent than the average citizen. This means (and I believe we must guard against this) that we tend to be more jaded, having been to two dog shows, a goat rope, and more than one seriously declining stock market.
These income and generational biases are actually reflected once you burrow down below the CCI final number and review the tangible demographics of those being surveyed. For instance, those 55 and over have a confidence index that is somewhat lower, at 59.2 – whereas those surveyed who are under 35 have a confidence index of 83.5! The young will always be fooled by hope; the old will always be tarnished by experience...
Those with household income of greater than $50,000 are probably comprised of a number of self-employed, professional, and other senior leaders whose income stream is relatively secure; not, surprisingly, their confidence level stands at 82 for January. Those, on the other hand, making less than $25,000 a year were only at (roughly) a 44.6 rating.
If you are interested in drilling down further, you will find that the survey asks not just present viewpoint and expectations for key measures like business conditions, employment opportunity, the stock market, the economy, interest rates and income levels, but specifically asks about any major purchases that individuals surveyed plan to make and vacations they plan to take in the coming 6 months. Often, by looking below the surface of “Ho-hum – the CPI 1s 62.1, up from 61.2 last month” we can spot some pretty important trends by looking at the plans and expectations of the representative survey group.
For example, in January more than 50% of respondents said they are planning to take a vacation in the next 6 months, 11.9% plan to buy a new-to-them automobile, and 4.4% -- one in every 23 of us – plans to buy a home in the next 6 months.
Whatever the most bandied-about number, the CCI composite, might indicate for the direction of the market short term, I have a hard time believing the economy is likely to sustain a massive hit if 1 in 2 Americans is vacationing as usual, 1 in 9 is buying a different car, and 1 in 23 is planning to buy a house, all in the next 6 months. We can debate whether their plans will reach fruition, we can debate whether they will attempt to do this via re-leveraging themselves but if it comes to pass as they are currently planning for, there’s no debate that it would be a heck of a boost to the 85% of the US economy that depends upon consumer spending. As a result of so many factors, with this one adding warm fuel to the fire, I remain cautious short term but quite bullish for the rest of the year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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