The Conference Board's Consumer Confidence Index® rose in November to the highest level since January. The index increased to 111.7 this month from October's upwardly revised 109.6. This month's reading was slightly lower compared to the 111.8 forecasted.
The Present Situation Index, which is based on consumers' assessment of current business and labor market conditions, increased from 136.1 to 140.9 in November. Meanwhile, the Expectations Index, which is based on consumers' short-term outlook for income, business, and labor market conditions, increased from 91.9 to 92.3 in November. Note that a level of 80 or below for the Expectations Index historically signals a recession within the next year.
“Consumer confidence continued to improve in November and reached the top of the range that has prevailed over the past two years,” said Dana M. Peterson, Chief Economist at The Conference Board. “November’s increase was mainly driven by more positive consumer assessments of the present situation, particularly regarding the labor market. Compared to October, consumers were also substantially more optimistic about future job availability, which reached its highest level in almost three years. Meanwhile, consumers’ expectations about future business conditions were unchanged and they were slightly less positive about future income.”
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Background on the Consumer Confidence Index
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. The historical range of this indicator is from 25.3 to 144.7. In this chart I have 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. The latest index reading of 111.7 is below 2 of the 6 recessions shown.
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.
Other Sentiment Indicators
For an additional perspective on consumer attitudes, see the most recent University of Michigan Consumer Sentiment Index. Both indexes gauge consumer attitudes toward the current and future strength of the economy. However, the Consumer Confidence Index is more influenced by employment and labor market conditions while the Michigan Sentiment Index is more focused on household finances and the impact of inflation.
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 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.
ETFs associated with sentiment include: Consumer Discretionary Select Sector SPDR Fund (XLY).
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