Consumer Confidence Increased Slightly in March

The Conference Board released its Consumer Confidence Index ® this morning, with the headline number coming in at 104.2, an increase of 0.8 from the upwardly revised final reading of 103.4 in February. This month's reading is better than the Investing.com forecast of 101.0.

The Conference Board Consumer Confidence Index® increased slightly in March to 104.2 (1985=100), up from 103.4 in February. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—decreased to 151.1 (1985=100) from 153.0 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—ticked up to 73.0 (1985=100) from 70.4 in February (a slight upward revision). However, for 12 of the last 13 months—since February 2022—the Expectations Index has been below 80, the level which often signals a recession within the next year. The cutoff date for the survey was March 20th, about ten days after the bank failures in the United States.

“Driven by an uptick in expectations, consumer confidence improved somewhat in March, but remains below the average level seen in 2022 (104.5). The gain reflects an improved outlook for consumers under 55 years of age and for households earning $50,000 and over,” said Ataman Ozyildirim, Senior Director, Economics at The Conference Board. Read more

The Conference Board Consumer Confidence Index measures the consumers attitudes and confidence in the economy, business conditions, and labor market, with higher readings indicating higher optimism. The general assumption is that when consumers are more optimistic they will spend more and stimulate economic growth. However, if consumers are pessimistic then spending will decline and the economy may slow down. The index is based on a 5 question survey, with 2 questions related to present conditions and 3 questions related to future expectations. The survey began in 1967 and was conducted every two months but changed to monthly reporting in 1977, which is where our data begins.

The next two charts are attempts to evaluate the historical context for this index as a coincident indicator of the economy. In the first chart, we see that the historical range of this indicator is from 26.9 to 144.7. In this chart I have also highlighted recessions and the level the index was at at the start of each recession. The average of the consumer confidence index at the start of recessions is 101.9, a level that we are currently above but have been hovering around for the last year.

In this next chart I have included an overlay with the GDP. It is easy to see the dips in consumer confidence when GDP is negative.

The next chart includes regression lines through the consumer confidence index and through the GDP. Interestingly, the GDP regression has a slight negative slope while consumer confidence has been increasing over the same time frame (since the late 1970s). It's clear that consumer confidence begins falling shortly before official recession calls and the index has been in an overall decline since June of 2021.

For an additional perspective on consumer attitudes, see the most recent Reuters/University of Michigan Consumer Sentiment Index. The Conference Board index is the more volatile of the two, but the broad pattern and general trends have been remarkably similar to the Michigan index.

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. The consumer measure is the more volatile of the two, so it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100. As the chart illustrates, the two have tracked one another fairly closely since the onset of the financial crisis. The two have diverged at brief periods and been highly correlated at others. At this point in time, they have both been in decline since June 2021.

Consumer Confidence Increased Slightly in March

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