Tuesday, March 30, 2010

Can't help but put ISM and Confidence surveys together: looks a little off

Today I digress from my recent Eurozone obsessions to compare the U.S. Consumer Confidence report (released today) to the PMI production surveys, a "soft" comparison of supply and demand. According to the Conference Board today:
The Conference Board Consumer Confidence Index, which had decreased in February, rebounded in March. The Index now stands at 52.5 (1985=100), up from 46.4 in February. The Present Situation Index increased to 26.0 from 21.7. The Expectations Index improved to 70.2 from 62.9 last month.
Consumers’ assessment of current-day conditions was less negative in March. Those claiming conditions are "bad" decreased to 42.8 percent from 45.1 percent, while those claiming business conditions are "good" increased to 8.6 percent from 6.8 percent. Consumers’ assessment of the labor market was also less pessimistic. Those saying jobs are "hard to get" declined to 45.8 percent from 47.3 percent, while those saying jobs are "plentiful" increased to 4.4 percent from 4.0 percent.
This report is nothing to write home about. Consumer confidence remains at excruciatingly low levels.

In a post back in September, I argued that the expectations index is a better indicator of consumer spending. As such, the expectations component remains stronger than the composite, having rebounded to its level at the onset of the recession. However, like the composite index, the expectations index is moving rather laterally since May 2009.

Notice the bigger picture, with the Confidence survey illustrated alongside the ISM manufacturing and non-manufacturing surveys. The story remains to be very one-sided on the production side, which is more likely to drop back to meet weak consumer demand UNLESS THE JOBS MARKET IMPROVES...FOR REAL. See my previous post on the temporary effects of the Census hirings.

The underlying demand for goods and services, as determined by the 70% of the economy that is the Consumer, is weak, especially at this stage of the recovery (having already posted a positive quarter of economic growth). (By the way, if you want National Income data, the BEA offers an exceedingly easy way to download it here.)

These numbers challenge even the most optimistic of us all (that used to be yours truly).

Rebecca Wilder


  1. hadnt seen, or didnt remember, your post on census hiring, although what i have heard about it convinces me its designed as a stealth stimulus; employing 1.2 to 1.4 million, depending on the source, which is about 3 times the number employed for the 2000 census...but you cant <span>build a sustainable economy with everyone being paid to count each other, manage each others money, search each others luggage, and empty each others bedpans...</span>   
    confidence may have a lot to do with the area of the country youre from and whether it has experienced massive job losses, such as michigan, or 50% declines in home prices, such as phoenix or vegas...those kinds of situations would even dampen your optimism...  
    the <span>Reuters/University of Michigan Surveys of Consumers</span> gives you slightly different readings; copying from the recent pdf:  
    <span>The Index of Consumer Sentiment was unchanged in March from the February survey and nearly identical to the level recorded six months ago. Following the sizable gains recorded from the recession lows set more than a year ago, confidence has moved sidewards with only small variations during the past six months. Consum-ers reported gains in the overall economy and expected the economy to continue to improve during the year ahead. Despite these expected gains in the economy, consumers’ evaluations of their own financial situation have re-mained grim due to the widespread expectation that improvement in their job and income prospects will be very small during the year ahead. </span> 

  2. Hi rjs,

    3 times is excessive, but one must also account for the growth in the labor force since that period when making the association to 2000. But nevertheless, all you end up with is (likely) a very big hangover in the end.

    I do see the economy improving, but the consumer side has yet to show the growth that would be needed to secure a speedy recovery. The U-shaped recovery is apparently playing out....unless the Treasury and the Fed decide that the stimulus is no longer needed. Households want to save, and likely more than current disposable income allows - it's going to be that way for some time.

    Ed Harrison has a nice post on the saving rate: http://www.creditwritedowns.com/2010/03/three-potential-explanations-for-the-continued-fall-in-us-savings-rate.html

    I think that consumers want to save, but expected income and interest rate incentives are "preventing" them from doing so. Defaults are also an issue.


  3. <span>
    <p><span>Money lags are definitive, biweekly, sometimes, weekly (but that's overkill).   Now, since the G.6 was discontinued, the transactions velocity of money is unknown.  I didn't know Ed Fry was retiring, & was off to another bent, or I would have coordinated the series' review for the nth time.  I also wish some of today's minds were born a little earlier.  But you can't tell anyone or the info becomes discounted. </span>
    </p><p><span> </span>
    </p><p><span>I'm no student (except for fishing).  It was about the money.  You could place your order knowing in advance what would happen.  I didn't get quotes, didn't read the news, papers, anything.  I just called back when it was time to exit the trade.  </span>
    </p><p><span> </span>
    </p><p><span>A surrogate figure is still published (but it's not accurate), & it's only half the equation &  for technical reasons, it shouldn't work this year.   </span><span> </span>
    </p><p><span>So no one can tell me anything.   the numbers say we're going to drop in a month (& i believe them),  this weak recovery will go on regardless.   There's still plenty of room to expand the money supply (esp. at year's-end).</span>