RUNSTUDIO
By Jennifer Nash
The Conference Board’s Consumer Confidence Index hit a six-month high in August. The index rose to 103.3 this month from July’s upwardly revised 101.9. This month’s reading was better than expected, exceeding the 100.9 forecast.
The Present Situation Index, which is based on consumers’ assessment of current business and labor market conditions, increased to 134.4 from 133.1 in July.
Meanwhile, the Expectations Index, which is based on consumers’ short-term outlook for income, business, and labor market conditions, rose to 82.5 from 81.1 in July. Note that a level of 80 or below for the Expectations Index historically signals a recession within the next year.
“Overall consumer confidence rose in August but remained within the narrow range that has prevailed over the past two years,” said Dana M. Peterson, Chief Economist at The Conference Board. “Consumers continued to express mixed feelings in August. Compared to July, they were more positive about business conditions, both current and future, but also more concerned about the labor market. Consumers’ assessments of the current labor situation, while still positive, continued to weaken, and assessments of the labor market going forward were more pessimistic. This likely reflects the recent increase in unemployment. Consumers were also a bit less positive about future income.”
“In August, confidence declined among consumers under 35 while it increased for those 35 and older. On a six-month moving average basis, confidence remained the highest among young consumers. Despite the overall improvement in the headline Index, confidence declined for consumers earning less than $25K. On a six-month moving average basis, consumers earning over $100K remained the most confident. Confidence among consumers earning $15K to $24.9K continued to trend down and was almost as low as for those earning less than $15K.”
Peterson added: “Consumers were likely rattled by the financial market turmoil in early August, as they were less upbeat about the stock market. In August, 46.9% of consumers expected stock prices to increase over the year ahead (down from 50.6% in July), while 27.2% expected a decrease (up from 23.1%). August’s write-in responses also included more mentions of stock prices and unemployment as affecting consumer’s views of the US economy. However, consumers did not change their views about a possible recession: the proportion of consumers predicting a recession was stable and well below the 2023 peak.” Read more
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 the start of each recession. The average of the consumer confidence index at the start of recessions is 101.9, a level we are now above for the first time in 5 months. The latest index reading of 103.3 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).
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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