Consumer Sentiment and Consumer Confidence are similar measures by two different organizations. The former is from the University of Michigan, the latter is by the Conference Board.
Consumer Confidence soared to 125.6 in March, up from 116.1 in February. This is the strongest reading in over 16 years.
Bloomberg Econoday cites the strength in both the current index and the expectations index, emphasis mine.
Highlights
It was two cycles ago that the consumer confidence index has been this high, at 125.6 in March for the strongest reading since December 2000. At 113.8, the expectations component hasn’t been this high since September 2000. The present situation component is at 143.1 for its best reading since August 2001 which was just at the end of the 1991 to 2001 economic cycle.
Subcomponents in the present situation are closely watched for indications on the monthly employment report and today’s results are very positive. Fewer, at 19.5 vs 19.9 percent, say jobs are hard to get this month and many more, at 31.7 vs February’s 26.9 percent, say jobs are plentiful.
A key reading on the expectations side is income, and here too the results are very positive. More this month, at 21.5 vs 19.2 percent, see their income increasing over the next six months and fewer, at only 7.0 vs 8.1 percent, see their income declining.
Buying plans are mixed with autos up but homes down. A negative in the report is a 2 tenths decline in 12-month inflation expectations to only 4.6 percent which is very low for this reading.
Consumers are extremely upbeat right now though the lack of inflation expectations doesn’t quite fit. What else doesn’t fit is actual consumer spending which has failed to match the strength underway in confidence. Watch on Friday for the consumer sentiment report which breaks down what it describes as unprecedented polarization in its sample between the optimism of Republicans and the pessimism of Democrats.
Questioning the Numbers
The conference board surveys 3,000 people every month.
Is 3,000 a sufficiently large number to map out confidence levels for the entire nation? I will ask Salil Mehta at Statistical Ideas for feedback on that question.
The more pertinent question, which I have discussed before, is: Does consumer confidence track spending?
That’s a widely held belief. And every month Econoday reinforces that belief with this statement: “While the level of consumer confidence is associated with consumer spending, the two do not move in tandem each and every month.”
Consumer Sentiment Snake Oil
On March 21, I wrote Consumer Sentiment Statistical Noise: Modern Day Snake Oil.
The charts I posted compared “consumer sentiment” by the University of Michigan, not “consumer confidence” by the conference board. The latter charges for its information. What follows is a set of charts from the preceding link.
Consumer Sentiment vs. Retail Sales
As you can see, retail sales keep marching higher and higher, slowing or stalling only in recessions. This is not an accurate comparison because the population is constantly growing.
I will adjust the chart in a moment, but first, let’s consider the population effect.
Total US Population
US Population Percent Change From Year Ago
The impact of population growth is one of the factors that affect sales growth.
But age itself is a factor. The spending habits and needs of someone of age 3 are far different from someone age 13, 23, 43, 63, or 83.
Nonetheless, we can make a crude adjustment to retail sales by factoring in population changes.
Sentiment vs Retail Sales Percent Change Minus Population Percent Change
If that chart suggests anything, I sure don’t know what, other than volatility in sentiment is far bigger than volatility in retail sales.
Let’s adjust sentiment volatility by a factor of six to see if that helps.
Sentiment/6 vs Retail Sales Percent Change Minus Population Percent Change
That chart looks like statistical noise. Sometimes the directions match sometimes they don’t. Perhaps month-to-month correlations are simply too frequent.
Population Adjusted Retail Sales vs Consumer Sentiment Percent Change From Year Ago
Let’s hone in on that for an amusing look.
Population Adjusted Retail Sales vs Consumer Sentiment Percent Change From Year Ago – Detail
Modern Day Snake Oil
I was discussing economic indicators with Pater Tenebrarum at the Acting Man Blog a couple of days ago. He pinged me with the correct takeaway.
Economic forecasting is not a science, and it is actually not the task of economic science to make forecasts (contrary to what is commonly asserted). Forecasting is akin to the task of the historian. Mises called speculators “historians of the future”.
Economic laws only play a role insofar as they can be used as constraints for a forecast. The problem is that all these models simply look at the data of economic history, at statistical series that always turn tail “unexpectedly”, driven by human action.
All these mathematical models are complete humbug. It is modern-day snake oil.
Politics vs Sentiment
The above charts are sufficient to prove the snake oiliness of equating sentiment to spending as a predictor of anything.
The story gets even more amusing if you dive into further details of the University of Michigan survey.
The overall level of consumer sentiment remained quite favorable in early March due to renewed strength in current economic conditions as well as the extraordinary influence of partisanship on economic prospects. The Current Economic Conditions component reached its highest level since 2000, largely due to improved personal finances. While current economic conditions were not affected by partisanship, this was not true for the component about future economic prospects: among Democrats, the Expectations Index at 55.3 signaled that a deep recession was imminent, while among Republicans the Index at 122.4 indicated a new era of robust economic growth was ahead. Interestingly, those who self-identified as Independents had an Expectations Index of 88.3, which was nearly equal to the midpoint of the partisan difference. Importantly, there was no moderation in these extreme views from last month, with the maintenance of the partisan divide fueled by selective attention to economic news, with Democrats more frequently reporting unfavorable developments and Republicans more frequently hearing of favorable changes. Overall, the sentiment data has been characterized by rising optimism as well as by rising uncertainty due to the partisan divide. Optimism promotes discretionary spending, and uncertainty makes consumers more cautious spenders. This combination will result in uneven spending gains over time and across products.
Look Ahead Index of Sentiment
- Democrats: 55.3 Supposedly this signals “a deep recession is imminent.”
- Republicans: 122.4 Supposedly this indicates “a new era of robust economic growth is ahead“.
- Independents: 88.3 That is “nearly equal to the midpoint of the partisan difference.”
Consumer sentiment suggests a deep recession within a new era of economic growth in which nothing much at all happens. Economists believe consumer spending will follow.
What Does Sentiment Match?
John Hussman provided the chart that got me diving into the above results. Once again, here it is:
Consumer Confidence vs. S&P 500
How Contrarian Is Such Confidence?
Belief in these measures of confidence and sentiment is high but the charts show such faith is seriously misplaced.
Moreover, please note that sentiment peaked just before the 2001 recession. It would be a fitting irony if the same happened again.
Why shouldn’t that be the case again?
Hussman Tweeted, and I strongly agree, “Multi-year highs in consumer confidence are less a sign of forthcoming consumer spending as a sign of forthcoming investor losses.”
Mike “Mish” Shedlock
A survey size of 3,000 from a population of 300,000,000 means there is a 95% probability that the actual number(that you would get by surveying all 300,000,000) is within +-2%, as long as the sample 3,000 is truly random, which is impossible in this case.
https://www.surveymonkey.com/mp/margin-of-error-calculator/
And those who know don’t talk. Those who talk don’t know.
Still don’t believe a thing that they post. Look at consumer credit at the same time and things don’t mesh. The number is fake news to keep the party going. Retail sales are dropping like a rock and yet consumer confidence is at a 2000 level high…………Sure
Good thing GDP doesn’t count the sale of second-hand or used goods……
Oh how declasse!
In other words…..fake surveys.
Just at my local lumberyard who does the majority of business for the Bay Area and was told things are slowing quick as compared to the last two yrs. peak is perhaps over. Tapped out consumer.
‘Consumer Confidence’ is responsible for more headfakes than Michael Jordan…
CC is not a real number… it’s just an emotional barometer that SOMETIMES correlates with real economic numbers. Practically useless.
Well, at least it’s marginally more civilized than vivisecting a goat and reading its viscera.
It is really about accuracy, not being civilized. If goat entrails give a better result in paired trials, I would go with the goats over the econ number crunchers. A random number generator or throwing darts might work equally well. Reminds me of when the British accidentally burned down their parliament buildings incinerating their old wood tally sticks so as not to look primitive.
Way better if you’re the goat.
Re the Michigan number.
Fwiw, David Rosenberg years ago said survey weighted by how confident. So, a small number (lets say the top 20% who own a stock portfolio) could be VERY confident … and could outweigh a large number (lets say the bottom 80% who own little to no stocks) who were (mildly) pessimistic … for an overall positive move.
Yes, very much.
Then there are those who paid off some debt (tax returns?) and think their outlook is rosy. How the question is phrased is everything as well. You’ll always have those who say F**k it and say do whatever makes the them happy, even if it is temporarily. The new changes with credit ratings seem to be helping out those who’ve had habitually bad credit scores too. Locally, I’ve seen incentive madness to buy, buy, BUY! anything with 4 digits or higher. It’s nuts.
Let the good times roll…
The “retail sales” numbers (~25 years, 1990-2017) on the first graph are steadily rising and appear “independent” of consumer sentiment numbers (bottom of graph). My guess is that retail sales numbers over the past 25 years are going steadily upwards as a function of price inflation or currency purchasing power devaluation. So, perhaps the graph is really showing dollar devaluation (price inflation) over the past 25 years. People in 1990 and 2017 could be buying similar amounts of energy/gasoline, food, houses, etc. and just paying more per item.
My take on consumer sentiment and confidence numbers is that sometimes they are indicative, and sometimes not. I would however give these numbers more credence than the Hillary polling numbers from election 2016, which may not be saying much.
Even if indeed “consumer confidence tracks spending” so what?
“Spending” alone tells us nothing unless a)it is spent on something that might actually lead to more SUSTAINABLE wealth generation in future and b)there are assets or income – not more debt uptake – to justify the spending.
Anything else is simply more bubble-driven misallocation of capital.
Consumer debt? … you don’t want to know … or, in case you do, here is Q4 (likely more of the same for Q1) …
…
“Aggregate household debt balances increased substantially in the fourth quarter of 2016. As of December 31, 2016, total household indebtedness was $12.58 trillion, a $226 billion (1.8%) increase from the third quarter of 2016. Overall household debt remains just 0.8% below its 2008Q3 peak of $12.68 trillion, but is now 12.8% above the 2013Q2 trough.”
https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2016Q4.pdf
I wonder if Mish can show retail sales index… adjusted for changes in TOTAL debt levels. Credit card debt might be OK short term, except between 1990 and 2008 many people used their house as an ATM, paying down their credit card balance inside their mortgage refi.
As kreditanstalt says, buying lots of useless stuff is not the same as buying productive assets. Buying useless stuff with debt is the start of a long economic decline.
Whatever the sentiment numbers suggest… happy and well off consumers do not bury themselves in debt right before a population surge attempts to retire.
$20 trillion in on-balance sheet federal debt — more than double Obama’s starting number — is proof the recovery never really happened. That debt burden will prevent any recovery until it is either paid down or defaulted on. Still no free lunch
That $20T is mostly corporate welfare. The money in bonds is private money and belongs to them. The government doesn’t spend any of it. It’s equivalent to your bank savings account. It’s a sign of wealth.
Obama was the worst president in US history, and the US will pay for Obama’s incompetence and corruption for decades.
F U Obama
Could not agree more. Country is more fractured than ever thanks to all of Obummer’s free crap.
Considering the ongoing recovery in asset prices, these gloom and doom blogs are beginning to look a bit silly. But then, that’s the Fed Chief’s job, isn’t it,,, to prove the doomsters wrong?
Playing devils advocate here, what if the next money blitz takes place on main street, goosing lagging wages in the process? Sky high consumer confidence, or animal spirits awakening?
Or is it different this time?
“Considering the ongoing recovery in asset prices,”
…
please please tell me you are not equating that with real economy.
And, if you are ….
The “Real” economy died in 1913. The Centrally Planned economy of today, owned and operated by the Fed, has been profitable for those who know how it all works.
Seems it’s the “Fundamentals Matter” crowd that has taken it on the chin.
But, hey, for now it’s the only game in town. Commodities, Real Estate and Collectables for the long haul. Great estates are made of those. Equities have been a nice gig as well, though a bit long in the tooth,,,but no one expects the DOW to fall back to 1980’s level of <1000 either. Nor are they expecting the Inquisition 😉
Out of dollars and into things (that one can use, or that hold value and /or produce an income) is never a bad move, considering dollars are constantly depreciating by mandate. It's that, or the system crashes, and I can't imagine TPTB allowing that to happen without a fight.
And if the system were to crash? What would all those green debt instruments be worth? Well, considering their low cost of production, I certainly don't think they would go up in value. Deflation is only possible in a realm of honest money. Tricky Dick pretty much threw a monkey wrench in that one, back in '71.
There is what we would like there to be,,,,,and there is what is.
All I can think of is that after buying all sorts of crap over the last several years I feel better because now I know I don’t need much of anything, hence I will now stick that cash into savings and investments.
Half in jest, but it could be true as this does apply to my family and I.
Consumer confidence proportional to ease of obtaining credit.
Am I the only one who finds this sort of thing just a little bit worrying?…
A Phoenix police motorcycle was struck by a Tesla Model X reportedly operating on autopilot last week, police said. The incident happened a few days before an accident involving an automated Uber vehicle in Tempe.
Phoenix police on Monday confirmed that the incident occurred when a Tesla driver and an on-duty officer exited the Black Canyon Freeway onto Utopia Road on the afternoon of March 21.
“It wasn’t even a reportable collision. If it wasn’t involving an officer, we would not have even investigated it.”
The officer, who was in front of the Tesla driver, stopped for a stoplight, police said. After also stopping briefly, the Tesla began moving forward, prompting the officer to jump off his motorcycle and move away. The car struck the fallen motorcycle, but no damage was reported to either vehicle.
No fault,,,,the “computer” did it, you see? Which will be the standard excuse in the lions share of future accidents, if this self driving nonsense isn’t nipped in the bud.