Slower growth pressures consumer confidence

Sometimes just waiting a day or so to let a particular release marinate allows us to gain a bit of perspective. Fed releases and unemployment data come to mind.

But I wouldn’t preclude a day-late look at the Conference Board’s survey of consumer confidence either.

The Consumer Confidence Index fell 3.2 points in the latest month, which makes the dip in June the third decline in four months. Clearly, not a trend that is welcome by Fed officials and investors.

The economic data are still pointing to a growing economy, but the heightened level of uncertainty that has been clouding the outlook has been taking a toll on sentiment in recent months.

Job creation slowed considerably in May, jobless claims are up, manufacturing activity has moderated, the housing market remains in the doldrums and many refuse to throw caution to the wind whenever they go online or shop at their local retailer.

Of course, gasoline prices are well off the early May highs, but at over $3.50 per gallon in most locales, a fill up still takes a considerable bite out of our wallets.

Until economic activity re-accelerates – and it still appears that the latest economic bump in the road will be short-lived – consumer confidence will probably remain under pressure, and caution will prevail at the nation’s malls.

Leading Index signals slow growth through the fall

The Leading Economic Index put together by the Conference Board jumped a surprisingly strong 0.8% in May, following a 0.4% decline in April, and a 0.7% increase in March.

“Modest economic growth is being buffeted by some strong headwinds, including high gas and food prices and a soft housing market. The economy will likely continue to grow through the summer and fall, however it will be choppy, Ken Goldstein,” an economist with the Conference Board said.

Although I’m not in the camp that believes a recession is imminent, May’s upbeat reading must be tempered by some of the components that drove the outsized gain.

The largest contributions came from the interest rate spread, consumer expectations, building permits and real money supply.

Interest rate spreads and money supply are extremely intangible, while consumer expectations in May were mixed and housing continues to struggle.

In the meantime, consumer sentiment, as measured by the University of Michigan’s survey, unexpectedly fell from 74.3 in May to 71.8 for the mid-June reading.  A survey by Bloomberg had called for 74.5.



Consumers sentiment remains in a downward trend amid weak job creation and elevated jobless claims.

Though prices have receded somewhat, the spike in gasoline prices earlier in the year has also been a negative, while uncertainty in housing is likely playing a role in depressing sentiment.

Conference Board’s Consumer Confidence Index diverges from U of Mich. consumer sentiment

What the U of Mich. survey gaveth last week, the Conference Board has taketh away.

We received some upbeat news last week on consumer sentiment, as measured by the University of Michigan survey, but another view of consumer confidence released this morning by the Conference Board is painting a different picture.

The Consumer Confidence Index fell 5.2 points to 60.8 in May, signaling the many of us soured on the economy during May.



“A more pessimistic outlook is the primary reason for this month’s decline in consumer confidence. Consumers are considerably more apprehensive about future business and labor market conditions as well as their income prospects,” Lynn Franco, Director of the Conference Board Research Center said.

“Inflation concerns, which had eased last month, have picked up once again. On the other hand, consumers’ assessment of current conditions declined only modestly, suggesting no significant pickup or deterioration in the pace of growth.”

The Consumer Confidence Index tends to do a better job measuring our outlook about the labor market, versus the University of Michigan’s survey, which likely accounts for the differing views on sentiment last month.

Still, the unexpectedly large drop comes as a surprise to most economists. Growth has not stalled and consumer spending continues to rise, albeit at a slow pace.

But the housing market has been strained and weekly jobless claims have jumped in recent weeks.

We’ll get a better look at the labor market on Friday when May’s employment report is released.
A survey by Bloomberg reveals that analysts expected 210,000 new private sector jobs, down from 268,000 in April.

McDonald’s, however, is likely to account for at least 50,000  new jobs in May, as the leading fast-food franchise beefed up on staff at the end of April and early May.

Consumer sentiment improves for second month

Surprise! Finally some good news.

The Reuters/University of Michigan’s Consumer Sentiment Index increased from 72.4 in mid-May to 74.3 at the end of the month, exceeding the Bloomberg forecast of 72.5. Further, the index is up almost 5 points from the April reading.



There had been some suggestions, including myself, that Bin Laden’s death at the beginning of the month may have temporarily lifted consumer spirits.  And polls following Saddam’s capture lent credibility to this line of reasoning.

But the continued rise in confidence suggests that more is at work here, and despite the headwinds facing economic activity, the mood is improving.

An easing of sky-high gasoline prices may be helping and further declines would likely aid consumer confidence and lend support to retailers.

And there’s more good news, as short-term inflation expectations eased.

“The one-year inflation expectation fell to 4.1 percent from 4.6 percent, its first decline since September 2010. The survey's five-to-10-year inflation outlook held steady at 2.9 percent,” Reuters said.

All in all, the latest data on sentiment and inflation are likely to receive a warm welcome at the Fed, which has been tasked with keeping inflation under wraps while promoting economic growth.

Consumer sentiment stabilizing

The University of Michigan’s survey of consumer sentiment tumbled in March amid the uncertainty generated by events in Libya, surging gasoline prices and the earthquake in Japan.

But the closely-followed Consumer Sentiment Index managed a small rise this month, increasing from 67.5 in March to 69.8 in April, suggesting some stability in consumer confidence.

Inflation continues to be a concern but longer-term fears appear to be easing.

Reuters said the one-year inflation expectation was unchanged at 4.6%, the highest level since 2008. No doubt that gasoline prices are heavily influencing the short-term outlook.

But the 5-to-10-year inflation outlook fell to 2.9% from 3.2% the month before, which reveals that consumers and bond holders alike still believe the Fed has not lost its ability to keep price hikes under control (see chart from WSJ below).

That bodes well  for the economy since consumers have been squeezed by the pain at the pump, and it has to come as a relief to policymakers at the Federal Reserve who have been wrestling with a sluggish economy, surging commodity prices and a modest bump in core inflation.

Concerns about prices, income pressure consumer confidence

The Conference Board reported today that the Consumer Confidence Index fell from an upwardly revised 72.0 in February to 63.4 in March, roughly in line with most analysts forecasts.

Lynn Franco, Director of The Conference Board Consumer Research Center said, “The sharp decline in confidence was prompted by a sharp decline in expectations. Consumers’ inflation expectations rose significantly in March and their income expectations soured, a combination that will likely impact spending decisions.



“On the other hand, consumers’ assessment of current conditions improved, indicating that while the short-term future may be uncertain, the economy continues to expand,” he added.

Fears that a decline in consumer confidence might eventually impact consumer spending, which makes up about 70% of GDP, would normally be warranted; however, investors at this point appear to be brushing aside the turmoil in the Middle East that has sent oil prices sharply higher, and the earthquake in Japan that is beginning to affect the supply chain.

Moreover, a one-month drop in confidence must be looked at in the context of the overall trend.

In other words, the subsequent rally in stocks that followed the brief sell-off a couple of weeks back suggests that investors are betting the economic recovery is intact, which is signaling further gains in employment and another round of upbeat earnings.

Middle East uncertainty, higher gasoline prices dampen consumer sentiment

The big jump in gasoline prices brought on by the escalating violence in the Middle East took a big toll on consumer attitudes during the early part of March according to the latest survey on consumer confidence.

The Reuter's/University of Michigan's Consumer Sentiment Index fell from 77.5 in February to 68.2 in March, according to preliminary data.

The survey's peek at current economic conditions came in at 83.6, down from 86.9 the month before. The survey's gauge of consumer expectations tumbled to 58.3 from 71.6, the lowest level since March 2009, Reuters said.

The upward spike in gasoline prices not only dampened sentiment more than expected, it also boosted inflation expectations.

The one-year outlook increased by 1.2 percentage points to 4.6%, while longer-term inflation expectations, which have generally been stable, increased 0.3% to 3.2%.

Still, longer-term bond prices have been fairly stable amid the spike in gasoline, suggesting that consumers may be overreacting to what’s happening to oil prices.

I’m already hearing chatter among some analysts that falling consumer sentiment will hurt consumer spending, but I remain unconvinced that the rise in gasoline prices will derail the recovery, especially given that natural gas and other forms of energy have been largely unaffected by what’s going on overseas.

Unless gasoline prices continue to surge, the impact on consumer spending will likely have only a limited impact at the nation’s retailers.

Consumer confidence at three-year high

In a day where much of the focus has been on the violence in Libya and its impact on oil prices, the Conference Board released its monthly survey and provided another piece of the economic puzzle showing that the rising tide of economic activity is lifting spirits.

The Consumer Confidence Index jumped from 64.8 in January to 70.4 in February, well above the stagnant range its been in since the summer of 2009 and the best reading in three years.



Lynn Franco, Director of The Conference Board Consumer Research Center, cited “growing optimism about the short-term future,” but also cautioned that labor market conditions may have improved moderately, but they "still remain rather weak."

Rising consumer confidence is likely to lend more support to consumer spending, which accounts for 70% of the U.S. economy.  Further gains in spending would fuel additional activity and help to put the recovery on a self-sustaining path.

But meaningful increases in employment are what’s needed in order to get consumer confidence back to pre-recession levels and revive sectors of the economy, such as housing, that continue to lag.

Consumer sentiment edges up to eight-month high

In the latest sign that the growing economy is having a positive effect on consumer psychology, the Reuters’/University of Michigan’s survey of consumer sentiment rose to its highest level in eight months.

Preliminary data showed that the Consumer Sentiment Index increased from 74.2 in January to a mid-February reading of 75.1. But in an apparent sign that lackluster job growth is hampering the improvement in consumer confidence, the expectations component of the survey slipped.



Nonetheless, the best level since June 2010 shouldn't be taken lightly, as it suggests consumers are feeling slightly more comfortable with their present job situation.  And the hard evidence that many are feeling less queasy about the economy can be seen in the burst in consumer spending at the end of last year that provided a big boost to Q4 GDP.

In the meantime, inflation expectations were unchanged, despite rising gasoline and food prices.

Reasonably-anchored short-term inflation expectations plays well for Fed Chairman Ben Bernanke, who has publicly stated that the Fed has the tools to implement an exit strategy and keep inflation under wraps.

Retail sales post sixth-straight rise

Consumer sentiment slips

Retail sales for December did not quite measure up to expectations, but the sixth-straight monthly increase indicates that the improving economy continues to support spending.

Sales grew a respectable 0.6% last month, which comes on top of a 0.8% gain in November.  Ex-autos, sales were up 0.5% in December following an impressive 1.0% the previous month.  Removing gasoline and autos, so-called core sales rose 0.4% after increasing 0.6% in November.

Overall, the gains over the final two months of the year indicate a fairly upbeat 2010 holiday shopping season, though the smaller rise in December may indicate that bargain-conscious consumers were drawn into the malls by early deals offered prior to Black Friday.

 

Still, the rise suggests a resilience among consumers, especially given that unemployment remains high, job creation has been relatively anemic, and housing prices have been flat or declining.

Now that the Bush tax cuts have been extended for another couple of years and Congress has gone along with the president’s proposal for a temporary two percentage-point reduction in the social security payroll tax, consumers will have extra cash to fuel additional gains this year.



In the meantime, early data from the University of Michigan’s consumer sentiment survey show that confidence unexpectedly dipped in January, dropping from 74.5 in December to 72.7.

One year inflation expectations rose, mostly due to higher gasoline prices, but inflation expectations remain well-anchored going out five years. 

That’s good news since the Fed shows no signs of delaying or easing up on their planned purchases of $600 billion in government securities.



Though disappointing, the dip is not that worrisome as the overall upward trend coming out of the summer slowdown remains intact.

Consumer confidence surveys diverge

The Consumer Confidence Index, which is compiled by the Conference Board, unexpectedly fell in December, dropping 1.8 points to 52.5.  Details and a more formal look are available at Examiner – Consumer confidence unexpectedly sags.

Despite the recent but modest drop in weekly jobless claims, improving retail sales and strength in stocks, consumer confidence has been stuck in a very narrow range since June, per the Conference Board’s survey, and there are few signs confidence is about ready to emerge from its funk (see chart below).

Worse, the index is far below where it stood in December 2007 – 90.6 – when the recession officially began.



Contrast the Conference Board’s survey with the one provided by the University of Michigan (see second chart below).

Consumer sentiment was impacted by the summer slowdown and fears the economy might be set to slip back into a double-dip recession.  But when growth resumed, sentiment also improved.

Further, at 74.5, it appears poised to top the pre-recession level of 75.5.



So why the divergence? Methodology seems to give us a clue.

Although the University of Michigan does not offer specifics on the job market, it did say December’s rise “was due to improved employment expectations that made consumers more willing to spend and adopt more favorable prospects for the overall economy.

"Consumers reported much more favorable news about recent changes in the job situation, and more frequently expected the unemployment rate to decline during the year ahead.”

Compare that relatively rosy assessment with the Conference Board’s take on the labor market – “Consumers’ assessment of the labor market was less favorable than last month. Those saying jobs are "plentiful" decreased to 3.9 percent from 4.3 percent, while those stating jobs are "hard to get" edged up to 46.8 percent from 46.3 percent.”

Given the fairly upbeat Christmas shopping season and continued gains in retail sales, for now the University of Michigan’s Index seems to be doing a better job of capturing the mood.

Improving economy lifts consumer sentiment

Preliminary data from the University of Michigan’s survey of consumer sentiment showed that consumers are moving past the summer lull in economic activity and growing a bit more optimistic about the future, despite November's rise in the unemployment rate.

The Consumer Sentiment Index increased from 71.6 in November to a mid-December reading of 74.2, the second-monthly increase and the highest reading since June.



The improvement in sentiment comes just in time for the Christmas shopping season.

Many analysts, including myself, are cautiously optimistic that the improving economy and increasing level of consumer confidence may bring some much-needed holiday cheer to recession-weary retailers.

Consumer confidence hits highest level in five months

The Conference Board’s Consumer Confidence Index hit its highest level since June, rising 4.2 points in November to 54.1.

The improvement is welcome news to retailers heading into the holiday shopping season, suggesting that consumers won’t be so conservative when the search the malls for that perfect gift.

Many retailers are still offering up excellent bargains in order to attract recession-scarred shoppers, but the second-monthly increase in consumer confidence is signaling that some may go beyond sale items, which should help fatten profit margins.



Consumer confidence remains at a relatively low level and is still stuck in the narrow range it has been in for over a year.  That's not surprising given the summer slowdown and an unemployment rate that remains stubbornly above 9%.

However, the job market is slowly starting to improve, while weekly jobless claims fell to the lowest level since June 2008 last week.  Moreover, the Conference Board’s survey revealed that most consumers are feeling a little better about what’s happening to the labor market, which is aiding sentiment and appears set to support economic growth.

Consumer sentiment stabilizes, inflation expectations rise

Preliminary results show that the University of Michigan’s consumer sentiment survey increased from 67.7 in October to 69.3 in November, just ahead of the Bloomberg estimate of 69.0. Notably, short-term inflation expectations jumped, but more about that in a moment.



Consumer sentiment, which took a beating when the already fragile and uneven recovery slowed during the summer, has stabilized and is beginning to inch higher amid a very modest acceleration in economy activity over the past couple of months.

The modest drop in weekly jobless claims is alleviating some of the anxiety about potential layoffs, while the private sector has created over 100,000 jobs per month in each of the last four months.

Still, the job creation remains below the 150,000 needed to bring down the unemployment rate, and without a noticeable pickup in the labor market, consumer confidence will likely remain depressed and hold back spending among the nation’s consumers.

Rising inflation expectations - keeping the genie in the bottle
So far just the talk in September and October that the Fed might initiate a new round of bond purchases, coupled with the green light the Fed gave in November, has reversed the drop in inflation expectations – at least over the short term.

According the the University of Michigan’s survey, consumers now anticipate that prices will rise 3.0% over the next 12 month, up from 2.7% last month and a paltry 2.2% in September.  Longer-term the 5-year outlook held steady at 2.8%.

Oil prices have jumped over the past two months, with the price approaching $90 per barrel, gold has soared above $1,400 per ounce, while the key industrial metal copper has returned to the highs reached in 2008.

It’s clear that rising demand around the world, especially in China and other emerging market economies, has supported prices.

But rising speculation created by the second round of quantitative easing that was just initiated by the Fed is producing a run up in commodity prices.  And consumers have not turned a blind eye to what’s going on, lifting their view as to what may happen to prices over the next year.

The Fed can do little to contain commodity inflation, given current monetary policy and global demand for raw materials. But it must remain vigilant in its efforts to anchor inflation expectations.

Minor improvement in consumer confidence

But mood still gloomy

The Conference Board’s Consumer Confidence Index increased from 48.6 in September to 50.2 in October.  Practically speaking, however, consumer confidence remains under pressure and has been hovering in a narrow range for over a year.

Moreover, it is still very close to where it stood when the recession ended in June 2009.



The sluggish job market and the fragile recovery are the primary reasons clouds aren’t clearing over confidence.

Nonetheless, consumer spending has been in a modest upward trend, though still anxious consumers continue to hinder sales growth.

Consumer sentiment still struggling

Preliminary data showed that the University of Michigan’s Consumer Sentiment Index fell from 68.2 at the end of September to 67.9 in mid-October, below expectations.

Retail sales are rising as anxious consumers slowly part with the dollars in their wallets and purses, but the high level of unemployment and worries about job security are hampering confidence.



Interestingly, inflation expectations increased from 2.2% in September to 2.6% – still low but stabilizing.

Consumer sentiment languishes

But rises from mid-month level

The jobless recovery and the perception that employment growth will continue to lag has taken a toll on confidence since the summer began, according to the final survey released.

The Thomson Reuters/University of Michigan Consumer Sentiment Index fell from 68.9 in August to 68.2 in September, though the final reading did rise from the mid-month reading of 66.6.



Nonetheless, anxieties remain amid a sluggish recovery that hit a soft patch over the summer, as lackluster job growth is limiting gains in income and spending.

Interestingly, one-year inflation expectations fell from 2.7% to 2.2%, which, along with other measures of inflation expectations, have set off alarm bells at the Fed (see Fed sees deflation as public enemy number one).

However, looking out five years, the inflation outlook receded by just 0.1% to 2.7% and remains well-anchored.

Concerns that prices might actually decline have shown up in the Fed’s latest statement, but prices seem to be stabilizing at a low level.  And recent increases in commodity prices and the falling dollar argue against further declines in the rate of inflation.

Consumer confidence – stuck in a rut

The Conference Board’s survey on consumer confidence fell a greater than forecast 4.7 points to 48.5 points in September, the third decline in four months and the lowest reading since February’s 46.4.

As chart chart below highlights, consumer confidence has been in a narrow range for over a year, with no signs of breaking out to the upside.

Worse, the Present Situation Index, which as its name implies, measures current attitudes on the economy, continues to scrape the bottom. It fell from 24.9 to 23.1.


(click to enlarge)

Future expectations, which has rebounded off the recession low, fell to 65.4 from 72.0.

Taken together, consumers have little good to say about current conditions, while expressing very guarded optimism about the future.

Just the facts – taken from the Conference Board’s survey
Digging into the release, those saying business conditions are “bad” increased to 46.1 percent from 42.3 percent, while those claiming business conditions are “good” declined to 8.1 percent from 8.4 percent.

Those claiming jobs are “hard to get” rose to 46.1 percent from 45.5 percent, while those stating jobs are “plentiful” decreased to 3.8 percent from 4.0 percent.

Consumers are also more pessimistic about future employment prospects.

Those expecting more jobs in the months ahead remained essentially unchanged at 14.5 percent in September, compared to 14.7 percent in August. However, those anticipating fewer jobs increased to 22.7 percent from 19.6 percent. The proportion of consumers expecting an increase in their incomes declined slightly to 10.2 percent from 10.6 percent.

This means…
The glum mood detected in the survey and also reflected in the University of Michigan’s survey has not caused consumer spending or retail sales to falter.

What it is likely doing is putting a cap on growth and suggesting further gains in economic output will be slow in coming.

Downward trend in consumer sentiment

Plenty of worries abound and the headwinds buffeting the economy are taking a toll on consumer sentiment, as evidenced by the latest survey from Thomson Reuters and the University of Michigan.



One interesting and troubling stat in the survey.  The one-year inflation expectations measure fell to 2.2% from 2.7% August, the lowest reading since last September. Nearly a third of consumers surveyed expect deflation or a zero inflation rate during the year ahead, Reuters said.

The survey's five-to-10-year inflation outlook index was unchanged from August at 2.8%.

Modest inflation expectations, along with the shallow recovery, have played a major role in preventing the rate of inflation from falling to zero.  If short-term inflation expectations head lower, pressure will rise on retailers to hold the line on any price increase.

Details at Examiner.

Consumer confidence rises in August

But low level highlights uncertainty

The Conference Board’s Consumer Confidence Index which had declined in July, increased from from 51.0 in July to 53.5 in August. The Present Situation Index fell to 24.9 from 26.4, but the Expectations Index increased to 72.5 from 67.5 last month.  Analysts surveyed by Bloomberg had expected a reading of 51.0.

Lynn Franco, Director of The Conference Board Consumer Research Center said, “Consumer confidence posted a modest gain in August, the result of an improvement in consumers’ short-term outlook. 

“Consumers’ assessment of current conditions, however, was less favorable as employment concerns continue to weigh heavily on consumers’ attitudes. Expectations about future business and labor market conditions have brightened somewhat, but overall, consumers remain apprehensive about the future. 

“All in all, consumers are about as confident today as they were a year ago (Aug. 2009, 54.5).”

Factors depressing confidence

Worries abound that the lack of job creation, uncertainty in the housing market and stubbornly high level of layoffs will continue to depress sentiment and hamper gains in consumer spending.

Consumers did become a little less stingy in July, as spending rose at its fastest pace since March; however,  Ben Bernanke said in his keynote address on Friday that consumer and business spending “"appears somewhat less vigorous than we expected."  And the general trend confirms his view.

Consequently, the economic  recovery has been sluggish and businesses are still reluctant to significantly add new jobs.

And it seems unlikely that spending will accelerate until consumers feel more comfortable with their own situation. Still, the rise argues against those who see a double-dip recession as all but imminent (see Case builds for double-dip recession but odds still favor recovery).