Consumer Confidence in December 2016

Written by Peter Wright

The source of this data is the Conference Board with analysis by Steel Market Update. The official news release from the Conference Board is included beneath our analysis. Please see the end of this piece for an explanation of the indicator.

The December report was very encouraging and came on the heels of an excellent November result. Consumer confidence is the driver of consumer spending which is the largest component of GDP and which ultimately drives a large portion of steel consumption.

The low point for consumer confidence this year was May with a value of 92.4, its lowest value since July last year. Since then the composite index has risen to 113.7 and the three month moving average (3MMA) has risen for seven consecutive months from 94.4 to 108.0 its highest value since April 2007. We prefer to smooth the data with a moving average because of monthly volatility which in the case of consumer confidence has been quite extreme since the beginning of last year. The composite index is made up of two sub-indexes. These are the consumer’s view of the present situation and his/her expectations for the future. The 3MMA of the present situation is exactly on its seven year trend line as expectations have broken through their trend line for the first time since November last year (Figure 1).

The historical pattern of the 3MMA of the composite, the view of the present situation and expectations are shown in Figure 2.

The progression of the 3MMA of the composite was positive throughout 2014 into early 2015 and then lacked direction for 15 months before the surge of the last seven months. Comparing December 2016 with December 2015 (y/y) the 3MMA of the composite was up by 11.97, the present situation was up by 13.1 and expectations were up by 11.1 (Table 1).

This was the first time for our table to be all green since June last year. The consumer confidence report includes data on job availability and wage expectations. It reports on the proportion of people who find that jobs are hard to get and those who believe jobs are plentiful and it measures those who expect a wage increase or a decrease. Since August 2011 both of the job availability components have steadily improved. Expectations for wage increases have not been as consistent but in this report the proportion expecting an increase rose and those expecting a decrease declined. Plans to buy homes have been positive y/y in 17 of the last 19 months. Plans to buy appliances have been positive for 10 of the last 12 months. Plans to buy a car have been positive y/y for 8 of the last 9 months.

SMU Comment: Consumer confidence is positively correlated with personal consumption which accounts for about 2/3 of GDP. Ultimately a positive growth of GDP has a positive effect on steel consumption therefore the overall improvement in the closing half of 2016 is very welcome.

The official news release from the Conference Board reads as follows and is entirely based on monthly changes. This is a highly regarded indicator which we believe needs to be examined in a longer time context to get the true picture which is why we only consider three month moving averages and focus our comments on year over year results. Because we look at time frames longer than one month our take on the December report is considerably more positive than the official report.

The Conference Board Consumer Confidence Index Increased in December

The Conference Board Consumer Confidence Index, which had increased considerably in November, posted another gain in December. The Index now stands at 113.7 (1985=100), up from 109.4 in November. The Expectations Index increased sharply from 94.4 to 105.5, but the Present Situation Index decreased from 132.0 last month to 126.1.

The monthly Consumer Confidence Survey, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The cutoff date for the preliminary results was December 15.

“Consumer Confidence improved further in December, due solely to increasing Expectations which hit a 13-year high (Dec. 2003, 107.4),” said Lynn Franco, Director of Economic Indicators at The Conference Board. “The post-election surge in optimism for the economy, jobs and income prospects, as well as for stock prices which reached a 13-year high, was most pronounced among older consumers. Consumers’ assessment of current conditions, which declined, still suggests that economic growth continued through the final months of 2016. Looking ahead to 2017, consumers’ continued optimism will depend on whether or not their expectations are realized.”

Consumers’ assessment of current conditions declined in December. Those saying business conditions are “good” decreased slightly from 29.7 percent to 29.2 percent, while those saying business conditions are “bad” increased from 15.2 percent to 17.3 percent. Consumers’ appraisal of the labor market was less positive than last month. Those stating jobs are “plentiful” declined from 27.8 percent to 26.9 percent, while those claiming jobs are “hard to get” increased from 21.2 percent to 22.5 percent.

Consumers’ short-term outlook improved considerably in December. Those expecting business conditions to improve over the next six months increased from 16.4 percent to 23.6 percent, while those expecting business conditions to worsen declined from 9.9 percent to 8.7 percent.

Consumers’ outlook for the labor market also improved markedly. The proportion expecting more jobs in the months ahead increased from 16.1 to 21.0 percent. However, those anticipating fewer jobs also increased, from 13.5 percent to 14.0 percent. The percentage of consumers expecting their incomes to increase rose from 17.4 percent to 21.0 percent, while the proportion expecting a decrease fell moderately, from 9.2 percent to 8.6 percent.

About The Conference Board

The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world’s leading organizations with the practical knowledge they need to improve their performance and better serve society. The monthly Consumer Confidence Survey, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The index is based on 1985 = 100. The composite value of consumer confidence combines the view of the present situation and of expectations for the next six months. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States.

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