Consumer Confidence Bounces Back

October 28, 2014

by Doug Short

The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through October 16. The headline number of 94.5 was a rebound over the revised September final reading of 89.0, an upward revision from 86.0. Today's number was well above the Investing.com forecast of 87.

Here is an excerpt from the Conference Board press release.

Says Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer confidence, which had declined in September, rebounded in October. A more favorable assessment of the current job market and business conditions contributed to the improvement in consumers’ view of the present situation. Looking ahead, consumers have regained confidence in the short-term outlook for the economy and labor market, and are more optimistic about their future earnings potential. With the holiday season around the corner, this boost in confidence should be a welcome sign for retailers.”

Consumers’ appraisal of current conditions was moderately more favorable in October than in September. Their view of business conditions was mixed; while the proportion saying conditions are “good” inched up from 24.2 percent to 24.5 percent, those claiming business conditions are “bad” also increased slightly, from 21.2 percent to 21.7 percent. Consumers’ assessment of the job market improved moderately, with the proportion stating jobs are “plentiful” increasing marginally from 16.3 percent to 16.5 percent, and those claiming jobs are “hard to get” declining slightly from 29.4 percent to 29.1 percent.

Consumers’ optimism, which had declined considerably in September, improved in October. The percentage of consumers expecting business conditions to improve over the next six months increased from 19.0 percent to 19.6 percent, while those expecting business conditions to worsen fell from 11.4 percent to 9.3 percent. Consumers’ outlook for the labor market also improved markedly. Those anticipating more jobs in the months ahead increased to 16.8 percent from 16.0 percent, while those anticipating fewer jobs fell from 16.9 percent to 13.9 percent. The proportion of consumers expecting growth in their incomes rose from 16.9 percent in September to 17.7 percent in October, while the proportion expecting a drop in income fell from 13.4 percent to 11.6 percent.

Putting the Latest Number in Context

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 is 20.3 points above the recession mindset and 0.3 points below the non-recession average.

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 exponential 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 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 94.5 is well above the current regression point of 78.5.

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On a percentile basis, the latest reading is at the 49th percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 45th 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 tracked one another fairly closely since the onset of the Financial Crisis.

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