Consumer Confidence at Highest Level in 17 Years

Written by Peter Wright

Consumers’ view of the current economy surged in October, reports The Conference Board. Its composite value of consumer confidence in October was 125.9, up from 120.6 in September. The last eight months have each been better than at any time since 2001. The three-month moving average (3MMA) increased from 120.3 in September to 122.3 in October, which was 20.3 points higher than in October last year. Consumer confidence is the driver of consumer spending, which is the largest component of GDP and 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 October, the 3MMA of the composite increased by 1.97 to 122.3 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 or 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 both components of the composite surged from mid-2016 until June this year when expectations declined. Expectations in April were 107.1 on a 3MMA basis and fell to 101.4 in August before recovering to 104.6 in October. Comparing October 2017 with October 2016, the 3MMA of the composite was up by 20.3, the present situation was up by 23.4 and expectations were up by 18.2 (Table 1).

All sub-indices in Table 1 were green in August and September, but in October plans to buy a car and plans to buy an appliance deteriorated year over year. 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 October 2011, both of the employment components have steadily improved. The difference between those finding jobs plentiful and those finding them hard to get has been in positive double digits every month since February, and in October reached 18.8 percent. 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. October was the first time that plans to buy an automobile were negative since March last year, but the negativity was very slight. Plans to buy a house have been positive year over year for each of the last seven months, and October was the first month in which plans to buy an appliance were negative year over year in 13 months. summarized as follows: “The Consumer Confidence Index rose 5.3 points in October to 125.9, its highest level since 2000. The present situation and the expectations indexes both rose, with consumers evaluating their present economic conditions more favorably than at any time since 2001. Expectations rose to a seven-month high. The labor market differential roared back after a slight drop last month and businesses remain quite confident in their market conditions.”

SMU Comment: Based on three-month moving averages, this was an excellent report. 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 news release reads as follows:

The Conference Board Consumer Confidence Index Improved in October

Confidence increased to its highest level in almost 17 years

The Conference Board Consumer Confidence Index®, which had improved marginally in October (an upward revision), increased again in October. The Index now stands at 125.9 (1985=100), up from 120.6 in October. The Present Situation Index increased from 146.9 to 151.1, while the Expectations Index rose from 103.0 last month to 109.1. The cutoff date for the preliminary results was Oct. 18.

“Consumer confidence increased to its highest level in almost 17 years (December 2000, 128.6) in October,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions improved, boosted by the job market, which had not received such favorable ratings since the summer of 2001. Consumers were also considerably more upbeat about the short-term outlook, with the prospect of improving business conditions as the primary driver. Confidence remains high among consumers, and their expectations suggest the economy will continue expanding at a solid pace for the remainder of the year.”

Consumers’ appraisal of present-day conditions improved in October. The percentage saying business conditions are “good” increased from 33.4 percent to 34.5 percent, while those saying business conditions are “bad” rose marginally from 13.2 percent to 13.5 percent. Consumers’ assessment of the job market was more upbeat. The percentage of consumers stating jobs are “plentiful” increased from 32.7 percent to 36.3 percent, while those claiming jobs are “hard to get” decreased slightly from 18.0 percent to 17.5 percent.

Consumers’ optimism about the short-term outlook also rose in October. The percentage of consumers expecting business conditions to improve over the next six months increased from 20.9 percent to 22.2 percent, while those expecting business conditions to worsen decreased from 9.6 percent to 6.9 percent.

Consumers’ outlook for the job market, however, was somewhat less favorable than in October. The proportion expecting more jobs in the months ahead decreased marginally from 19.2 percent to 18.9 percent, however, those anticipating fewer jobs declined from 13.0 percent to 11.8 percent. Regarding their short-term income prospects, the percentage of consumers expecting an improvement decreased marginally from 20.5 percent to 20.3 percent, however, the proportion expecting a decrease declined from 8.6 percent to 7.4 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.

Latest in Economy