Curiously Weak Consumer Confidence

[ProSense]

Tim Duy

Curiously Weak Consumer Confidence

There was a bit of angst regarding yesterday's Conference Board consumer confidence report. See, for example, Mark Thoma and Brad DeLong. The report appears to contradict the generally positive Univ. of Michigan report - still weak compared to pre-recession, but at least moving in the right direction. More interestingly, it is at odds with recent consumer spending reports, not just early reports of the best Christmas season (in terms of year-over-year gains) since 2005, but also the most recent trends in personal consumption expenditures.

Something is off-kilter, and has been since mid-year. Consumer confidence appears too low relative to actual consumption. Either confidence should be moving higher, as the Univ. of Michigan survey suggests, or consumption needs to slow dramatically. Place your bets.

Consider the recent trends in real consumer spending (percentage change are log difference approximations):

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Ignorance aside, I think the acceleration needs an explanation of some sorts. Throwing out some ideas, first note that household balance sheets are in a better position, at least measured by the debt servicing costs:

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Consumption can be supported by taking savings rates back down to zero, or close to it. To be sure, you can respond angrily that consumers desperately need to rebuild their asset base, that policies such as ZIRP that encourage spending simply kick the can down the road, etc. And these things might be true. But, in the near term, one cannot deny the potential for consumer spending support via a falling saving rate. This is especially important given occasional concerns about rising oil prices. When the last oil shock hit in 2006-7, saving rates were hovering around 2%, not much cushion to absorb the shock. At least at 5.3% consumers have a little more wiggle room.

Finally, real income less transfer payments are on the rise:

more

Great charts.

[mtnsnake]

1. There was a clip on the news yesterday about this

After getting so many reports that retail shopping had its best season in years, analysts were at a loss for words when the consumer confidence reports came in at a lower level than anticipated. I guess the two generally go hand in hand, and they can't figure out why the consumer confidence level didn't correspond to the positive retail spending numbers.

[CreekDog]

2. Maybe the minions don't look at charts and numbers to decide how the economy is treating them

but look at other measures, like their employment and employment prospects, their ending unemployment benefits, their increasing health insurance costs or non-existent health insurance, their laid-off teacher friends, their laid off friends in other fields, the foreclosures on their street, the mortgage that's now more than the value of their house, the 401k that replaced their defined benefit plan that is still below 2008 levels but now the employer match is gone --oh their employer is reporting massive profits for some reason, as is their bank (which increased fees across the board...)

can't see why consumers would lack confidence...:eyes:

[martymar64]

3. So they are saying "spend more, save less"?

Sorry, I don't need any junk from China. The only purchase I'll make is for a safe and a shotgun.

[high density]

4. Corporations want us to consume but they don't want to pay us anything

One of these things has to change.

I cannot see how consumption could be significantly impacted by a falling savings rate. The saving rate is already near zero when expressed in the terms of this article of disposable income. What we need are wages to go up and for more people to have good jobs. Companies want profits that increase to infinity but consumers are already completely tapped out.