Consumer Confidence "Rose Sharply" in January

January 27, 2014

by Doug Short

The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through January 15. The headline number of 102.9 was a dramatic increase from the revised December final reading of 93.1, an upward revision from 92.6. Today's number was substantially above the Investing.com forecast of 95.1.

Here is an excerpt from the Conference Board press release.

Lynn Franco, Director of Economic Indicators at The Conference Board, said: “Consumer confidence rose sharply in January, and is now at its highest level since August 2007 (Index, 105.6). A more positive assessment of current business and labor market conditions contributed to the improvement in consumers’ view of the present situation. Consumers also expressed a considerably higher degree of optimism regarding the short-term outlook for the economy and labor market, as well as their earnings.”

Consumers’ assessment of present-day conditions was considerably more favorable in January than in December. Those saying business conditions are “good” increased from 24.7 percent to 28.1 percent, while those claiming business conditions are “bad” decreased from 18.9 percent to 16.8 percent. Consumers were also much more positive in their assessment of the job market. Those stating jobs are “plentiful” increased from 17.2 percent to 20.5 percent. Those claiming jobs are “hard to get” decreased from 27.3 percent to 25.7 percent.

Consumers’ optimism about the short-term outlook improved in January. The percentage of consumers expecting business conditions to improve over the next six months rose from 17.8 percent to 18.4 percent, while those expecting business conditions to worsen declined from 9.9 percent to 7.7 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 33.5 points above the recession mindset and 8.7 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 102.9 is well above the current regression point of 78.8.

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On a percentile basis, the latest reading is at the 66td percentile of all the monthly readings since the start of the monthly data series in June 1977.

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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