Highlights. The October consumer confidence report is strong throughout, led by a 5.3 point jump in the headline index to 125.9 which is a 17-year high. Jobs and income are the keys to October’s report. The assessment of October’s jobs market is unusually favorable with only 17.5 percent of the sample saying jobs are hard to get, which is very low and down 1/2 percentage point from September.
This reading will firm expectations for strength in Friday’s employment report. Another positive is confidence in the outlook for the jobs market where pessimists are making up an increasingly smaller share, at only 11.8 percent.
The strong jobs market is translating into expectations for rising income. Here too pessimists are making up a smaller share, at only 7.4 percent. And jobs are not the only positive for income as the sample is increasingly bullish on the stock market, at a very wide 42.1 percent bulls vs 23.2 percent bears.
Another strength is a jump in plans to buy autos, up 1 percentage point to 13.1 percent and perhaps suggesting that hurricane-replacement demand is still at play in what may be a positive for tomorrow’s unit auto sales. A major weakness in the report is inflation expectations which are down 2 tenths to 4.7 percent which is very low for this reading.
Consumer spending has never lived up to the enormous strength in consumer confidence but the shopping year is still far from over and today’s results should give retailers a lift going into the holidays.
Market Consensus Before Announcement
Consumer confidence in September was pulled down only slightly by weakness in hurricane states, otherwise readings remained unusually strong especially labor market assessments. The Econoday consensus is calling for a gain in October, to 121.0 vs September’s 119.8.
Definition
The Conference Board compiles a survey of consumer attitudes on the economy. The headline Consumer Confidence Index is based on consumers’ perceptions of current business and employment conditions, as well as their expectations for six months hence regarding business conditions, employment, and income. Three thousand households across the country are surveyed each month. In general, while the level of consumer confidence is associated with consumer spending, the two do not move in tandem each and every month.
Description
The pattern in consumer attitudes can be a key influence on stock and bond markets. Consumer spending drives two-thirds of the economy and if the consumer is not confident, the consumer will not be willing to pull out the big bucks. Confidence impacts consumer spending which affects economic growth. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.
This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Consumer confidence did shift down in tandem with the equity market between 2000 and 2002 and then recovered in 2003 and 2004. In 2008 and 2009, the credit crunch and past recession led confidence downward with consumer spending contracting in tandem. More recently during the economic recovery, consumer confidence has edged back up but has been outpaced by improvement in spending.
Since consumer spending accounts for such a large portion of the economy, the markets are always eager to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. It’s easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don’t move in tandem month by month.
