Post by jeffolie on Jan 31, 2012 16:10:41 GMT -6
Fear vs Greed: less confident consumers but which ones (the upper class or the rest)?
Weighing the importance of consumers in a 70% consumer driven economy is tricky while the index jumps too much, volitile. For example, in August the collapse of the index to screaming recession lows was then followed by the biggest burst of SUV buying from the upper class consumers sustained over 4 months and starting in September.
The GM indicator
Long ago a stock guru made his bones by creating the GM indicator: as goes GM then so goes the stock market. Essentially, the sales of average cars to average Americans used to drive the economy, but used to is not now. Today, the upper class consumers decide if buying a new SUV or Crossover plus customers for extended cab pickups drive the new vehicle market. Ford, not GM now leads the pack. The average American does not buy a new vehicle, it takes too much of their income while they FEAR losing their jobs; hence, the below piece on consumer confidence samples the average consumer without separating the most likely to buy new vehicles.
The index used to be viewed with a benchmark of 100 which is no longer the most likely benchmark. Using today's new vehicle buyer and using the average consumer, the consumer confidence index should rightly be viewed for purposes of predicting new vehicle buying and driving the economy differently than the old benchmark of 100. The below piece does not evaluate who the current consumers, but past pieces show that as many or as large a percentage by the upper class, richer buyers as all the lower class buyers: a equally divided population of buyers of upper class buyers vs all the rest below.
Who is fearful vs who is confident
So, I conclude that observing both groups (a equally divided population of buyers of upper class buyers vs all the rest below) separate is important. The September and following 4 months of upper class new vehicle buying splurge was not mirrored by the other equally important group of the not upper class as buyers. The upper class buying was not enough to drive the whole economy into an expanding, thriving economy; rather, it dragged the economy into no better than an inventory rebuilding process which is unsustainable at best unless the upper class continues its splurge.
Gridlock
The economy is in economic gridlock, just above the breakeven point.
I am not surprised at all. In fact, I predicted this back in 2008 and never relented from my views that both 2011 and 2012 would be years of economic and political gridlock. Nothing serves as a better object than the below TRENDLINE OF CONSUMER CONFIDENCE which remains an indicator consistently moving barely above the lows from 2008.
=============================
Consumer Confidence Takes an Unexpected Dive
By Doug Short January 31, 2012
The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through January 19th. The 61.1 reading is substantially below the consensus estimate of 67.0 reported by Briefing.com, which is the same as Briefing.com's own estimate. Are we seeing a reversal of the holiday optimism reflected in last month's 64.8 level (which was an upward revision from 64.5)?
Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of The Conference Board Consumer Research Center: "Consumer Confidence retreated in January, after large back-to-back gains in the final two months of 2011. Consumers' assessment of current business and labor market conditions turned more downbeat and is back to November 2011 levels. Regarding the short-term outlook, consumers are more upbeat about employment, but less optimistic about business conditions and their income prospects. Recent increases in gasoline prices may have consumers feeling a little less confident this month."
Consumers' appraisal of current conditions was less favorable in January. Those claiming business conditions are "good" decreased to 13.3 percent from 16.3 percent, while those stating business conditions are "bad" increased to 38.7 percent from 33.5 percent. Consumers’ assessment of the labor market was also less positive. Those saying jobs are "plentiful" decreased to 6.1 percent from 6.6 percent, while those claiming jobs are "hard to get" increased to 43.5 percent from 41.6 percent.
Consumers' short-term outlook was slightly weaker than it was last month. The proportion of consumers anticipating business conditions to improve over the next six months decreased to 16.6 percent from 16.8 percent, while those expecting business conditions will worsen increased to 15.1 percent from 13.4 percent. Consumers' outlook for the labor market, however, was moderately more favorable. Those expecting more jobs in the months ahead increased to 16.2 percent from 14.0 percent, while those anticipating fewer jobs declined to 19.5 percent from 20.2 percent. The proportion of consumers expecting an increase in their incomes declined to 13.8 percent from 16.3 percent. [press release]
The Sobering Historical Context
Let's take a step back and put Lynn Franco's interpretation in a larger perspective. The table here shows the average consumer confidence levels for each of the five recessions during the history of this monthly data series, which dates from June 1977. The latest number is well above the bottom of the unprecedented trough in 2008, but it is well below the 69.4 average confidence level of recessionary months a full 32 months after the end of the Great Recession (based on the official call of the National Bureau of Economic Research).
The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy. Toward this end I have highlighted recessions and included GDP. The linear regression through the index data shows the long-term trend and highlights the extreme volatility of this indicator. Statisticians may assign little significance to a regression through this sort of data. But the slope clearly resembles the regression trend for real GDP shown below, and it is probably a more revealing gauge of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference. Today's reading of 61.1 is dramatically below the 81.3 of the current regression level (24.9% below, to be precise).
Click for a larger image
It is interesting that the consumer confidence pattern of the past 32 months following the NBER declared end to the recession is similar to the 36-month pattern following the 1990-1991 recession, although the current pattern has so far been at a lower confidence level. At an even higher level, there was also a two year period following the 2001 recession where confidence lagged. A common factor in all three cases is a "jobless recovery". To great extent Consumer Confidence is a proxy for unemployment problems. The rise in confidence in recent months is is concurrent with an improvement in the monthly unemployment numbers, although the January confidence report runs counter to the trend.
On a percentile basis, the latest reading is at the 15th percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 11th percentile of non-recessionary months.
For an additional perspective on consumer attitudes, see my post on the most recent Reuters/University of Michigan Consumer Sentiment Index. Here is the chart from that post.
Click for a larger image
And finally, let's take a look at the correlation between consumer confidence and small business sentiment, the latter by way of the National Federation of Independent Business (NFIB) Small Business Optimism Index. As the chart illustrates, the two have been closely correlated since the onset of the Financial Crisis.
Click for a larger image
The NFIB index has been less volatile than the Conference Board Consumer Confidence Index, but it has likewise remained depressed despite the official end to the recession in June 2009.
advisorperspectives.com/dshort/updates/Conference-Board-Consumer-Confidence-Index.php
Weighing the importance of consumers in a 70% consumer driven economy is tricky while the index jumps too much, volitile. For example, in August the collapse of the index to screaming recession lows was then followed by the biggest burst of SUV buying from the upper class consumers sustained over 4 months and starting in September.
The GM indicator
Long ago a stock guru made his bones by creating the GM indicator: as goes GM then so goes the stock market. Essentially, the sales of average cars to average Americans used to drive the economy, but used to is not now. Today, the upper class consumers decide if buying a new SUV or Crossover plus customers for extended cab pickups drive the new vehicle market. Ford, not GM now leads the pack. The average American does not buy a new vehicle, it takes too much of their income while they FEAR losing their jobs; hence, the below piece on consumer confidence samples the average consumer without separating the most likely to buy new vehicles.
The index used to be viewed with a benchmark of 100 which is no longer the most likely benchmark. Using today's new vehicle buyer and using the average consumer, the consumer confidence index should rightly be viewed for purposes of predicting new vehicle buying and driving the economy differently than the old benchmark of 100. The below piece does not evaluate who the current consumers, but past pieces show that as many or as large a percentage by the upper class, richer buyers as all the lower class buyers: a equally divided population of buyers of upper class buyers vs all the rest below.
Who is fearful vs who is confident
So, I conclude that observing both groups (a equally divided population of buyers of upper class buyers vs all the rest below) separate is important. The September and following 4 months of upper class new vehicle buying splurge was not mirrored by the other equally important group of the not upper class as buyers. The upper class buying was not enough to drive the whole economy into an expanding, thriving economy; rather, it dragged the economy into no better than an inventory rebuilding process which is unsustainable at best unless the upper class continues its splurge.
Gridlock
The economy is in economic gridlock, just above the breakeven point.
I am not surprised at all. In fact, I predicted this back in 2008 and never relented from my views that both 2011 and 2012 would be years of economic and political gridlock. Nothing serves as a better object than the below TRENDLINE OF CONSUMER CONFIDENCE which remains an indicator consistently moving barely above the lows from 2008.
=============================
Consumer Confidence Takes an Unexpected Dive
By Doug Short January 31, 2012
The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through January 19th. The 61.1 reading is substantially below the consensus estimate of 67.0 reported by Briefing.com, which is the same as Briefing.com's own estimate. Are we seeing a reversal of the holiday optimism reflected in last month's 64.8 level (which was an upward revision from 64.5)?
Here is an excerpt from the Conference Board report.
Says Lynn Franco, Director of The Conference Board Consumer Research Center: "Consumer Confidence retreated in January, after large back-to-back gains in the final two months of 2011. Consumers' assessment of current business and labor market conditions turned more downbeat and is back to November 2011 levels. Regarding the short-term outlook, consumers are more upbeat about employment, but less optimistic about business conditions and their income prospects. Recent increases in gasoline prices may have consumers feeling a little less confident this month."
Consumers' appraisal of current conditions was less favorable in January. Those claiming business conditions are "good" decreased to 13.3 percent from 16.3 percent, while those stating business conditions are "bad" increased to 38.7 percent from 33.5 percent. Consumers’ assessment of the labor market was also less positive. Those saying jobs are "plentiful" decreased to 6.1 percent from 6.6 percent, while those claiming jobs are "hard to get" increased to 43.5 percent from 41.6 percent.
Consumers' short-term outlook was slightly weaker than it was last month. The proportion of consumers anticipating business conditions to improve over the next six months decreased to 16.6 percent from 16.8 percent, while those expecting business conditions will worsen increased to 15.1 percent from 13.4 percent. Consumers' outlook for the labor market, however, was moderately more favorable. Those expecting more jobs in the months ahead increased to 16.2 percent from 14.0 percent, while those anticipating fewer jobs declined to 19.5 percent from 20.2 percent. The proportion of consumers expecting an increase in their incomes declined to 13.8 percent from 16.3 percent. [press release]
The Sobering Historical Context
Let's take a step back and put Lynn Franco's interpretation in a larger perspective. The table here shows the average consumer confidence levels for each of the five recessions during the history of this monthly data series, which dates from June 1977. The latest number is well above the bottom of the unprecedented trough in 2008, but it is well below the 69.4 average confidence level of recessionary months a full 32 months after the end of the Great Recession (based on the official call of the National Bureau of Economic Research).
The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy. Toward this end I have highlighted recessions and included GDP. The linear regression through the index data shows the long-term trend and highlights the extreme volatility of this indicator. Statisticians may assign little significance to a regression through this sort of data. But the slope clearly resembles the regression trend for real GDP shown below, and it is probably a more revealing gauge of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference. Today's reading of 61.1 is dramatically below the 81.3 of the current regression level (24.9% below, to be precise).
Click for a larger image
It is interesting that the consumer confidence pattern of the past 32 months following the NBER declared end to the recession is similar to the 36-month pattern following the 1990-1991 recession, although the current pattern has so far been at a lower confidence level. At an even higher level, there was also a two year period following the 2001 recession where confidence lagged. A common factor in all three cases is a "jobless recovery". To great extent Consumer Confidence is a proxy for unemployment problems. The rise in confidence in recent months is is concurrent with an improvement in the monthly unemployment numbers, although the January confidence report runs counter to the trend.
On a percentile basis, the latest reading is at the 15th percentile of all the monthly readings since the start of the monthly data series in June 1977 and at the 11th percentile of non-recessionary months.
For an additional perspective on consumer attitudes, see my post on the most recent Reuters/University of Michigan Consumer Sentiment Index. Here is the chart from that post.
Click for a larger image
And finally, let's take a look at the correlation between consumer confidence and small business sentiment, the latter by way of the National Federation of Independent Business (NFIB) Small Business Optimism Index. As the chart illustrates, the two have been closely correlated since the onset of the Financial Crisis.
Click for a larger image
The NFIB index has been less volatile than the Conference Board Consumer Confidence Index, but it has likewise remained depressed despite the official end to the recession in June 2009.
advisorperspectives.com/dshort/updates/Conference-Board-Consumer-Confidence-Index.php