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Confidence Improves Hooray!
The consumer conference board says Consumer Confidence Index Improves in December.
The Conference Board Consumer Confidence Index® now stands at 96.5, up from 92.6 in November.
How did the board determine confidence was up?
"The Consumer Confidence Survey uses an address-based mail sample design. The CCS mailing is scheduled so that the questionnaires reach sample households on or about the first of each month. The targeted responding sample size—approximately 3,000 completed questionnaires—has remained essentially unchanged throughout the history of the CCI."
Amazingly, a mail sample of 3,000 is sufficient to determine the confidence of the entire nation. You can buy the data if you want. I'll take a pass.
The Fed would have you believe consumer confidence numbers have some deep meaning. Many others believe confidence is a leading indicator of spending which makes confidence a leading indicator of the economy.
Bloomberg states "Consumer sentiment is directly related to the strength of consumer spending."
In a December speech The Economic Outlook and Monetary Policy Fed Chair Janet Yellen commented on "confidence" (both consumer confidence and hers) several times.
- Job growth has bolstered household income, and lower energy prices have left consumers with more to spend on other goods and services. These same factors likely have contributed to consumer confidence that is more upbeat this year than last year. Increases in home values and stock market prices in recent years, along with reductions in debt, have pushed up the net worth of households, which also supports consumer spending.
- Ongoing gains in the labor market, coupled with my judgment that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2 percent as the disinflationary effects of declines in energy and import prices wane.
- On balance, economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market. And, as I have noted, continuing improvement in the labor market helps strengthen confidence that inflation will move back to our 2 percent objective over the medium term.
Consumer Board Confidence Chart
Given that confidence is purportedly so strong, inquiring minds may wish to see the numbers in graphical form.
Here's a nice chart from the Advisor Perspectives report Consumer Confidence Improved in December.
click on chart for sharper image
- Recessions can start at any confidence level
- Confidence plunges during recessions
- The current level is just about average
Gallup Economic Confidence
Inquiring minds are no doubt interested in other confidence measures. The Gallup Economic Confidence Index is one such measure.
Gallup's Economic Confidence Index is the average of two components: how Americans rate the current economy and whether they feel the economy is getting better or getting worse. The index has a theoretical maximum of +100, if all Americans rate the economy as excellent or good and improving; and a theoretical minimum of -100, if all Americans rate the economy as poor and getting worse.
The Gallup Economic Confidence Index hit a multi-year high of +7 about a year ago. It is now at -11. Interestingly, the index turndown happens to match the turndown in manufacturing and the slowdown in US GDP.
Consumer Spending Expectations
Rather than survey consumers on how confident they are, why not survey them on how much they intend to spend?
Actually, the New York Fed does just that.
Please consider One-Year Ahead Household Spending Growth Expectations.
Spotlight on the "Con" in Consumer Confidence
Fancy that. Consumers said they would spend less and they did. The timing corresponds to Gallup. Timing also corresponds to the manufacturing recession.
Rather than believe its own direct survey on spending, the Fed puts its faith in indirect measures of confidence and its own unjustified beliefs.
Mike "Mish" Shedlock