Thursday, April 2, 2009

Consumer confidence indices: further economic deterioration

Consumers around the world remain stressed, which is helping to drag down economic growth. A lot of it has to do with seriously weak labor market conditions. Key economies, Eurozone, Japan, the United Kingdom, and the United States, are experiencing an ongoing surge in their respective unemployment rates; this is taking a toll on consumer confidence.

Although confidence remains anemic, it is stabilizing in some economies.

The unemployment rate is rising at record levels over the year, and bringing consumer confidence down hard. In fact, the consumer confidence measures for these same economies imply further economic contraction into the first quarter of 2009. Each index shows anemic confidence numbers from January 2009 through March 2009.

I normally am quite skeptical of consumer confidence surveys, and certainly consumers can change their tune with a bit of good news heading their way; but these numbers do point toward ongoing economic deterioration. However, some - the U.K., the EU, and Japan - are improving slightly....this is semi-good news.

The United Kingdom
GfK NOP Consumer Confidence:
Consumers remain cautious but confidence slowly increasing; confidence highest since May 2008, but remains low; GfK NOP Consumer Confidence Index has increased five points to -30; confidence in the “general economy” over the next 12 months increases.

Chart source:
GfK NOP Consumer Confidence
The European Union/Eurozone
European Commission Consumer Survey:
The fall in the ESI is attributed to the deteriorating sentiment in the industry and services sectors, which fell by the same amount (-2 points) in both regions. In the other sectors, a mixed picture is emerging. Consumer sentiment stabilised in the EU, but fell by 1 point in the euro area. Retail trade increased by 2 points in the EU and by 1 point in the euro area, reinforcing the rebound which started in February. Construction in both regions stabilised at the levels seen in February.
The United States
U.S. Consumer Confidence Survey:
The Conference Board Consumer Confidence Index™, which had declined sharply in February, was flat in March. The Index now stands at 26.0 (1985=100), up from 25.3 in February. The Present Situation Index declined to 21.5 from 22.3 last month. The Expectations Index increased to 28.9 from 27.3 in February.
Consumers' appraisal of the labor market was somewhat more pessimistic in March. The percentage of consumers saying jobs are "hard to get" increased to 48.7 percent from 46.9 percent in February, while those claiming jobs are "plentiful" was unchanged at 4.6 percent.

There have been some glimmers of hope in some of the manufacturing indices and housing indicators pointing to a slowdown in the economic contraction. But those are high-frequency indicators; and furthermore, they certainly don't suggest an imminent expansion is on the way, especially with delinquency rates on the rise. And although the surveys may be stabilizing, it is still too early to cheer.

Rebecca Wilder


  1. Rebecca,

    Has anyone, anywhere, as evidenced by the literature, causally linked a consumer confidence survey to some tangible measure, say, the exact dollar amount of consumer durable goods (white goods, cars) purchases in the following month?

    Has anyone proved ever that lifestage and circumstances (e.g., having a newborn) or DPI (disposable personal income) to buy outright or to fund credit are not the overriding factors in consumer purchases?

    As search at with the keywords 'consumer confidence durable goods' says no, that no one ever has proved a causal link.

    Yet, at Google Scholar, the first results pages (1 - 10 of about 31,900) suggest that correlation exists, at least according to some rather old (early 1960s) and perhaps flawed studies.

    Scanning the abstracts, I cannot find any that show anyone can use the Conference Board Consumer Confidence Index to predict the exact dollar amount of durable goods purchases in a following month or following quarter either nationwide or more usefully within a targeted geographic region.

    Certainly, no businessman can use such confidence surveys to plan inventory levels and marketing expenditures accurately, if at all.

    What good are such surveys except to get TV news watchers and newspaper readers addicted to fear mongering stories?

    May I have your thoughts, please, Rebecca.

  2. some questions your not supposed to ask

  3. Fundamentally and technically the stock market has bottomed.

    Monetary flows (MVt) are excessive.

    Long-term interest rates now look to bottom in Apr.

  4. Hi Smack,

    I am not aware of any such study. However, Macro Advisers claims that adding the Michigan sentiment survey improves the fit of their consumption equation, although I don’t know if they include the survey in their model on a regular basis.

    I have always been skeptical of these surveys, especially since gas prices are very cyclical (there seems to be some strong correltations there). I agree with many of your concerns, these surveys are done using very methodologies, and consumer confidence can change depending on the news du jour. However, it is remarkable how gloomy consumers are around the world; and furthermore, confidence does seem to be coincident with recessions.

    Thanks for dropping by! Rebecca

  5. Hi Smack,

    A paper tying behavior patterns to consumer sentiment (UMich measure).


  6. Hey Rebecca,

    How are your fingers?

    Thanks for the legwork.

    I'll read the paper with the eye toward predicting an exact dollar amount of durable goods purchases in a following month or following quarter.

    After all, knowing a mere correlation or causality is not worth it if it cannot predict dollars and sense.