The latest Conference Board Consumer Confidence Index was released this morning based on data collected through Dec. 13. The 65.1 reading was well off the consensus estimate of 70.0 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 November of 73.7 was revised down to 71.5.
Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of Economic Indicators at The Conference Board: Consumers' expectations retreated sharply in December resulting in a decline in the overall Index. The sudden turnaround in expectations was most likely caused by uncertainty surrounding the oncoming fiscal cliff. A similar decline in expectations was experienced in August of 2011 during the debt ceiling discussions. While consumers are quite negative about the short-term outlook, they are more upbeat than last month about current business and labor market conditions.
Consumers' assessment of current conditions improved in December. Those stating business conditions are "good" rose to 17.1 percent from 14.6 percent, while those stating business conditions are "bad" decreased to 27.3 percent from 31.2 percent. Consumers' appraisal of the labor market was mixed. Those saying jobs are "plentiful" edged down to 10.3 percent from 11.0 percent, while those saying jobs are "hard to get" declined to 35.6 percent from 37.4 percent.
Consumers' optimism about the short-term outlook plummeted in December. The percentage of consumers expecting business conditions to improve over the next six months declined to 17.6 percent from 21.3 percent, while those expecting business conditions to worsen increased to 21.5 percent from 15.8 percent.
Consumers' outlook for the labor market also turned more pessimistic. Those anticipating more jobs in the months ahead declined to 17.0 percent from 19.5 percent, while those expecting fewer jobs increased to 27.3 percent from 21.2 percent. The proportion of consumers expecting an increase in their incomes was virtually unchanged at 15.4 percent. However, those expecting their incomes to decline rose to 18.7 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 fallen 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 probably a 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 65.1 is 18.1% below the current regression level of 79.4.
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 1990-1991 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 15.1 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.