Consumers Feeling Better About Economy

Written by Peter Wright

Consumer confidence increased again in August, according to The Conference Board.

The composite value of consumer confidence in August was 122.9, up from 120.0 in July. The first estimate for July was revised down slightly. The last seven months have each been better than at any time since 2001. The three month moving average (3MMA) increased from 118.3 in July to 120.1 in August, which was 21.4 points higher than in August last year. Consumers are feeling better about the present economic environment, though their expectations have been muted for the last three months. 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 source of this data is The Conference Board with analysis by Steel Market Update. Please see the end of this piece for the official news release from the Conference Board and an explanation of the indicator.

In August, the 3MMA of the composite increased by 1.80 to 120.1 points. 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. Both are now above their eight-year 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. All three measures are now higher than they were at the pre-recession peak of 2007. The 3MMA of the composite made no progress from early 2015 through mid 2016 as improvements in the consumer’s view of the present situation were negated by a decline in expectations. Since mid-2016, both components of the index surged until June this year when expectations declined. Expectations in May were 102.3. June came in at 99.6, July at 103.0 and August at 104.0 points.

Comparing August 2017 with August 2016, the 3MMA of the composite was up by 21.4, the present situation was up by 26.6 and expectations were up by 18.0 (Table 1). All sub-indices in Table 1 were green in April, May, June and August. Plans to buy an appliance broke the string and were negative y/y in July.

The consumer confidence report includes encouraging 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 employment components have steadily improved. The difference between those finding jobs plentiful and hard to get at positive 18.1 points in August was the highest since before the recession. Expectations for wage increases have not been as consistent, but the differential between those expecting an increase and those expecting a decrease has been in positive double digits since January this year. Plans to buy an automobile have been positive year over year for each of the last 13 months. Plans to buy a house have been positive for each of the last five months and plans to buy an appliance have been positive for each of the last 12 months. summarized as follows: “Consumer confidence rose once again in August, building on last month’s gains. Across the board, consumers and businesses are sounding their confidence in the current economic climate. In recent months, expectations have not been as bullish as current conditions, but that should not take away from the fact that expectations are still at their highest level in more than a decade.”

Economic fundamentals remain solid. Average hourly earnings rose rapidly in July and the unemployment rate dropped a tenth of a point last month, on top of a rise in the labor force participation rate, signaling further tightening in the labor market. Labor market conditions remain robust, with several months of strong job additions at the national level, allowing job creation to outpace population growth. The labor market expansion will persist through the next few years. Natural population growth and slightly higher labor force participation will enable gains to continue, but at a steadily moderating pace. Industries such as construction, professional/business services, and transportation/logistics will account for an increasing share of jobs, while the contributions from manufacturing, healthcare and finance will diminish.

SMU Comment: This was another excellent report, and on a historical basis the consumer’s view of the present situation is well above the 27-year average. The employment sub-indexes are good, which will drive personal consumption, the largest component of GDP. This in turn will have a positive effect on steel consumption.

The official Aug. 29 news release from the Conference Board reads as follows:

The Conference Board Consumer Confidence Index®, which had increased in July, improved further in August. The Index now stands at 122.9 (1985=100), up from 120.0 in July. The Present Situation Index increased from 145.4 to 151.2, while the Expectations Index rose marginally from 103.0 last month to 104.0. The cutoff date for the preliminary results was Aug. 16.

“Consumer confidence increased in August following a moderate improvement in July,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ more buoyant assessment of present-day conditions was the primary driver of the boost in confidence, with the Present Situation Index continuing to hover at a 16-year high (July 2001, 151.3). Consumers’ short-term expectations were relatively flat, though still optimistic, suggesting that they do not anticipate an acceleration in the pace of economic activity in the months ahead.”

Consumers’ appraisal of current conditions improved further in August. Those saying business conditions are “good” increased from 32.5 percent to 34.5 percent, while those saying business conditions are “bad” moderated from 13.5 percent to 13.1 percent. Consumers’ assessment of the labor market was also more upbeat. Those stating jobs are “plentiful” rose from 33.2 percent to 35.4 percent, while those claiming jobs are “hard to get” decreased from 18.7 percent to 17.3 percent.

Consumers’ optimism about the short-term outlook was relatively flat in August. The percentage of consumers expecting business conditions to improve over the next six months decreased from 22.4 percent to 19.6 percent, but those expecting business conditions to worsen declined from 8.4 percent to 7.3 percent.

Consumers’ outlook for the labor market was also mixed. The proportion expecting more jobs in the months ahead declined from 18.5 percent to 17.1 percent, while those anticipating fewer jobs decreased marginally from 13.2 percent to 13.0 percent. Regarding their short-term income prospects, the percentage of consumers expecting an improvement increased moderately from 20.0 percent to 20.9 percent, while the proportion expecting a decline decreased from 9.5 percent to 7.8 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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