Consumer Confidence in February 2017

Written by Peter Wright

The source of this data is the Conference Board with analysis by Steel Market Update. Please see the end of this piece for an explanation of the indicator.

The February report made up the January decline and then some, the three month moving average (3MMA) has improved for nine consecutive months and was the strongest since August 2001. 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.

Included at the end of this write up is the official news release from the Conference Board.

The low point for consumer confidence last year was May with a value of 92.4. In February the composite index had a value of 114.8, up from 111.6 in January. The 3MMA increased from 111.4 to 113.2. 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 slightly below its seven year trend line as expectations have surged up and through their trend line (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 as expectation decreases negated the improving view of the present situation. The composite has surged in the last seven months led by expectations. Comparing February 2016 with February 2015 (y/y) the 3MMA of the composite was up by 17.2, the present situation was up by 13.0 and expectations were up by 20.0 (Table 1).

The only negatives in Table 1 are intentions to buy a home and and appliance which may be a function of rising interest rates. 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. Prior to the January and February reports, plans to buy a home had been positive y/y in 17 of the previous 19 months. Plans to buy appliances were positive in 10 of the previous 12 months. Plans to buy a car have been positive y/y for 10 of the last 11 months.

SMU Comment: The surge in expectations is particularly encouraging as it will drive personal consumption which is the largest component of GDP. This is turn will have a positive effect on steel consumption. At the present rate, consumer confidence will exceed the previous peak that occurred just before the recession in the next few months.

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.

The Conference Board Consumer Confidence Index Increased in February

The Conference Board Consumer Confidence Index, which had declined moderately in January, increased in February. The Index now stands at 114.8 (1985=100), up from 111.6 in January. The Present Situation Index rose from 130.0 to 133.4 and the Expectations Index increased from 99.3 last month to 102.4.

 “Consumer confidence increased in February and remains at a 15-year high (July 2001, 116.3),” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers rated current business and labor market conditions more favorably this month than in January. Expectations improved regarding the short-term outlook for business, and to a lesser degree jobs and income prospects. Overall, consumers expect the economy to continue expanding in the months ahead.”

Consumers’ assessment of current conditions held relatively steady in February. Those saying business conditions are “good” declined slightly from 29.0 percent to 28.7 percent, while those saying business conditions are “bad” also decreased, from 15.9 percent to 13.2 percent. Consumers’ assessment of the labor market was also mixed. Those stating jobs are “plentiful” declined from 27.1 percent to 26.2 percent, while those claiming jobs are “hard to get” also decreased, from 21.1 percent to 20.3 percent.

Consumers were more optimistic about the short-term outlook in February. The percentage of consumers expecting business conditions to improve over the next six months increased from 22.9 percent to 24.0 percent, however those expecting business conditions to worsen also rose slightly from 10.8 percent to 11.1 percent.

Consumers’ outlook for the labor market was also moderately more upbeat. The proportion expecting more jobs in the months ahead increased from 19.7 percent to 20.4 percent, while those anticipating fewer jobs declined from 14.4 percent to 13.6 percent. The percentage of consumers expecting their incomes to increase rose marginally from 18.1 percent to 18.3 percent, while the proportion expecting a decrease declined from 9.4 percent to 8.2 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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