By Rom Badilla
Consumer’s are filled with optimism as data from a recent survey surges higher. The Consumer Confidence Index, which is a three thousand household survey and is based on perceptions on current business and employment conditions, spiked to 70.3 for September. Today’s release follows the prior period reading of 61.3 which was revised from an initial reported number of 60.6. The September uptick surprised market expectations as the median survey of economists’ forecasts was calling for less of an improvement to 63.1 for the month.
The sudden rise was attributed to a jump in consumers’ outlook as well as gains in other components reflecting present conditions. The Expectations component surged to 83.7 in September from 71.1. A year ago, this sub-index came in at a paltry 55.1.
Consumer’s view of their Present Situation improved by 3.7 points from the previous month to 50.2. Furthermore, the percent of people who think there is plentiful employment opportunities moved higher from 7.2 in August to 8.3. 51.8 percent think jobs are not so plentiful, which is down from 52.2 percent. The percent of people who are saying that jobs are hard to get fell from 40.6 to 39.9 percent.
Purchasing plans for major ticket items reveal further optimism by consumers. The percent of people who plan to buy a car in the next six months increased from 11.6 in August to 12.1 percent. Consumers looking to add major appliances such as TVs, washing machines, and dryers moved higher by 0.9 percent to 49.2 percent.
Interestingly and contrary to the recent string of positive data on the housing market, sentiment toward home ownership fell. The percent of people looking to buy a home in the next six months fell 0.5% to 5.0% in September.
Despite the major improvement in the headline number, consumer confidence remains relatively low. This highlights the lack of robust growth in this economic climate as individuals continue to de-lever their balance sheets. This is evident when we compare the most recent data to recoveries from other recessions.
Currently, we are in the 39th month of the recovery which officially began in July 2009. The average of Consumer Confidence over the past 12 months currently stands at 63.0. At the same point in the recovery cycle after the end of the 2001 recession, the trailing 12 month average of Consumer Confidence was at 98.02. Following the 1990 to 1991 recession, the average at a similar stage was at 76.4 while the average after the 1982 recession was at 99.0.
While the data is still low and is far from levels seen during previous recoveries, the trend continues to march upward. Recent weakness in trade and business investment coupled with declines in government expenditures is a cause for concern in terms of economic growth. However, major improvements in consumer sentiment could provide an offset that the economy is looking for. A sustained push higher could propel consumer spending which in turn could lead the overall economy to better growth.