Book Reviews

Increasing Consumer Confidence

December 10, 2009



The Conference Board’s index of Consumer Confidence increased to 49.5% from a significantly upwardly revised level of 48.7 in October. Originally, the October level was at 47.5%. Consensus expectations were for the consumer confidence level to actually fall to 47.5%. The index saw a big step up from dismal levels during the spring, but since May consumer confidence has roughly hovered within a few points of 50.

All of the improvement came from the expectations element of the consumer confidence index rose to 68.5 from 67.0 last month. However, that was because fewer consumers thought things would get worse, and would stay unchanged (at a very bad level) rather than due to an increase in those who thought things would actually get better over the next six months. The percentage expecting an improvement in business conditions over the next six months actually declined to 20.0% from 20.8%. However, the decline in those expecting further deterioration in the economy fell to 15.1% from 18.2% last month.

The 5,000 households that the Conference Board surveyed assessment of the present situation fell ever so slightly to 21.0 from 21.1. That is a very bad reading, not to far from the record low set in February 1983 of 17.5%. Overall, 45.7% of consumers saw the current business conditions as bad, down from 46.7% in October, while 8.1% saw business conditions as good, up from 7.8% last month. Their view of the labor market continued to decline, with 49.8 seeing jobs as hard to get, up from 49.4% last month. The percentage (of deluded people) who saw jobs as plentiful dropped to 3.2% from 3.5% in October.

While the better-than-expected evaluation for this month — and the upward revision to last month — are encouraging, the details of the report are not all that robust. In theory, higher consumer confidence should lead consumers to open up their wallets, something that is very important as the holidays approach. If consumers have confidence about the economy, they are more likely to buy big ticket items like cars from Ford (F – Analyst Report) or major appliances from Whirlpool (WHR – Snapshot Report). Perhaps they might buy more impulse items at the checkout counter at Wal-Mart (WMT – Snapshot Report).

Historically though, the numbers, like the University of Michigan sentiment numbers, do not have a great track record of predicting how consumers will behave. So count this report as a minor positive. Changes in consumer spending generally have much more to do with changes in personal income than with this sort of survey data, and that data is due out tomorrow.

Consumer Confidence Increasing

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