Consumer Confidence Data is Sending Mixed Signals
The Conference Board’s Consumer Confidence Survey, which reflects prevailing business conditions and likely developments for the months ahead, dropped for the second consecutive month in November. However, diving into these numbers shows a bit of mixed reality.
Within the present situation index, a subset of the headline index, there was an increase in both “good” and “bad” assessments of conditions— made possible by the survey’s “Good,” “Neutral,” and “Bad” methodology. Conversely, reviewing the expectations index subset, which looks six months into the future, optimism improved mildly while pessimism dropped by a slightly larger degree.
These mixed signals could add a dose of optimism to a gloomy forecast. However, interestingly, consumers are growing more downbeat about future labor market and income prospects. According to the expectations index, 21.4% of respondents anticipate fewer jobs, a rise from 20.8% in October, while the share of consumers expecting more jobs to be available fell by 0.9%. Meanwhile, 16.6% of consumers expect their incomes to decrease, up from 15.2% in October. Just 17.2% of consumers expect their incomes to rise, down from 19.6% last month.
The mixed messaging arriving from these data echoes the complex nature of our ongoing economic environment. Market-based inflation expectations have risen to their highest level since July, which, despite upbeat labor market results in recent months, is likely weighing heavier on consumers’ minds than job market indicators. After all, the everyday consumer more easily notices changes in their purchasing power, but not so much abstract changes in the macroeconomy.
The notion that consumers will selectively overweight or ignore key pieces of information is supported by Conference Board Senior Director of Economic Indicators Lynn Franco, who credits a recent rise in gas and food prices as the main catalyst to the fall in confidence. Confusing the overall picture even further, however, retailers are reporting a record-high in online Black Friday sales this year, demonstrating that actual consumption remains robust.
In the immediate term, it will be worth observing if and how current results from the expectations index will impact future movement in the present situation index. In theory, the expectations index serves as a leading indicator for the present situation index, a relationship that has generally held true since the beginning of the pandemic.