An unexpected decline in consumer confidence as measured by the Conference Board:
Posted by DeLong at February 24, 2004 01:41 PM | TrackBackConsumer Confidence Index - Economics - The Conference Board: The Conference Board's Consumer Confidence Index, which had improved last month, weakened significantly in February. The Index now stands at 87.3 (1985=100), down from 96.4 in January. The Expectations Index fell to 96.8 from 107.8. The Present Situation Index declined to 73.1 from 79.4.... “Consumers began the year on a high note, but their optimism has quickly given way to caution,” says Lynn Franco, Director of The Conference Board’s Consumer Research Center. “Consumers remain disheartened with current economic conditions, and at the core of their disenchantment is the labor market. While the current expansion has generated jobs over the past several months, the pace of creation remains too tepid to generate a sustainable turnaround in consumers’ confidence. And, with consumers anticipating economic conditions to remain about the same in the months ahead, their short-term outlook turned less optimistic.”
Consumers' assessment of current conditions was less positive in February than last month. Those claiming business conditions are “good” declined to 19.3 percent from 21.9 percent. Those claiming conditions are “bad” rose to 25.1 percent from 22.9 percent. Consumers claiming jobs are “hard to get” edged up to 32.1 percent from 31.6 percent. Those saying jobs are “plentiful” dipped to 11.8 percent from 12.3 percent. Consumers’ short-term outlook weakened significantly. Those expecting business conditions to improve in the next six months dropped to 21.8 percent from 27.6 percent. Consumers expecting conditions to worsen over the next six months rose to 8.7 percent from 6.7 percent.
The employment outlook was also less favorable. Those anticipating more jobs to become available in the next six months fell to 18.7 percent from 22.0 percent. Those expecting fewer jobs to become available increased to 18.1 percent from 15.0 percent. The proportion of consumers anticipating an increase in their incomes declined to 16.7 percent from 19.2 percent.
Watch, someone from the Administration will come out with a line that consumer confidence is declining because people are dismayed that the tax cuts haven't been made permanent.
Posted by: Patrick Allen on February 24, 2004 02:46 PMSo, we have a 4.03% yield on the 10 year treasury. Is the answer the weakness in job creation and wage and benefit growth? Is the answer so much global supply that consumer price increases are limited for quite a while yet? Is the answer demand for bonds from Asia and corporate pension plans that keeps yields down?
Curious curious.
Posted by: anne on February 24, 2004 02:52 PMIt's Delong's and Krugman's and Stiglitz's and Rubin's and etc.'s fault for saying not-nice things about the US admin's economic policy and scaring people into thinking that making tax cuts permanent wouldn't make any difference. Those commies!
Prof D, are you not ASHAMED!?
Posted by: jml on February 24, 2004 02:53 PMPatrick Allen - you scooped me. I was about to say this will be Bush's latest excuse for a tax cut for the rich - and you already said as much.
Posted by: Harold McClure on February 24, 2004 03:41 PMCan it be that people are finally starting to take the Bush administration's rhetoric about how wonderful things are with a grain of salt?
Posted by: dubblblind on February 24, 2004 03:52 PMPatrick Allen beat me to it too. Although I am just waiting to see how this new need for tax cuts will be phrased. And how it will be received.
Posted by: Alan on February 24, 2004 04:04 PMAnd M2 suggests that the consummer is just a tad nervous about how he's going to pay those bills...
Posted by: calmo on February 24, 2004 08:19 PMBad, and probably hedonically adjusted to make the numbers look less bad. I'm trained to wait for the upward adjustment of the January number and a spike up in the February number.
On a related note, PPI numbers were supposed to come out on Feb 19th. The release was stalled. What are they hiding? How bad was the PPI in January that they didn't release it? 1.5%, higher? They could have at least released the "old" calculuation. I'm sure the number will be hedonically adjusted. Maybe the figure will put upward pressure on bond yields. The elites have no doubt shared the PPI with the cartel to give them some time to figure out where to apply the duct tape to their derivatives.
The Asian central banks (primarily Japan and China) are doing what the Fed doesn't have to do (yet), monetize our debt. This is keeping rates down. Surely, if the ACBs do halt their purchases, the story will change quick. In this fiscal year, Japan has budgeted about $575B worth of yen to support their currency (debase it) this year. ACBs will keep demand strong until at least the election.
With sagging consumer confidence, increased inflation, and upward pressure on interest rates, and with what all this bodes, can the "D"-word really be out of the question.
Posted by: Phil on February 24, 2004 09:14 PMBrad, why is the decline unexpected? You've been posting about the lousy job situation for months now. If the majority of Americans judge the economy chiefly through jobs (theirs, their spouse's), then the lousy job market should translate directly into poor confidence numbers.
Posted by: Barry on February 25, 2004 05:06 AMAnne-- The international situation is changing.
I watch consumer goods import prices -- it
excludes oil and autos. The year-over-year change in this index just turned positive for the first time since 1995. Other import prices reflect
industry specific factors more than the dollar.
auto import prices are up 6%.
Moreover, there is evidence that import price now has a bigger impact on the CPI than unit labor costs.
In addition the PPI has clearly turned up.
The core PPI for crude materials is rising at rates not seen since the 1970s.
Capacity utilization at the crude level is around 85% -- its long term average.
commodity prices are soaring because of:
1. inadequate capacity because while we were over investing in tech in the 1990s we were undrinvesting in basic materials.
2. Chinese demand. In addition the Japanese econ
is showing the strongest growth in over a decade
partially because of exports to China.
3. the weak dollar.
Moreover, the single best leading indicator of oil prices is industrial material prices.
Oil prices have never peaked before industrial commodity prices peaked. Moreover, large oil companies are starting to raise their estimates of the long term price of oil. Oil firms are risk avoiders and drilling plans are based on worse case scenarios. They will not drill unless the oil will be profitable even if oil prices plunge. They are now in process of raising their oil price extimates for drilling from $16 to $20.
At other stages --final & intermediate -- the PPI has clearly bottomed.
However, less than 40% of the CPI reflects thing that are in the PPI, so we may not seen a higher
CPI for some time because of several factors --
including retailers and others near the consumer absorbing higher costs.
I suspect that because of weak wages if CPI does rise consumers will not buy and it will lead to economic weakness. I suspect this will be the impact of higher heating prices and extremely low
temps this winter as consumers offset record high heating bills with weaker spending on other items.
Historically, consumer expectations had over a 90 correlation with the stock mkt PE from 1960 to 1990.This tight fit broke down in mid-1990s, but looks like it is being reestablished.
Quick question - a year or two ago, when it still looked like we could have a decent recovery, the consumer confidence number was the subject of much parsing, and I seem to recall that it was described as either a lagging or a weak indicator of actual economic health. In other words, it's either a response to 2 month old news, and so not indicative of where we're about to be, or it simply jumps all over the place, and is only moderatley noteworthy.
So which is it? Option C would be that my memory is faulty.
Posted by: JRoth on February 25, 2004 07:25 AMConsumer confidence is more a concurrent indicator than a leading indicator.
In consumer spending models consumer confidence
usually is a significant, conincident variable
that is one of multiple factors that determine consumer spending. the other factors tend to be things like lagged fed funds, real income growth, etc.
-- Moreover, the single best leading indicator of oil prices is industrial material prices.
Oil prices have never peaked before industrial commodity prices peaked. Moreover, large oil companies are starting to raise their estimates of the long term price of oil. Oil firms are risk avoiders and drilling plans are based on worse case scenarios. They will not drill unless the oil will be profitable even if oil prices plunge. They are now in process of raising their oil price extimates for drilling from $16 to $20.
-- At other stages --final & intermediate -- the PPI has clearly bottomed.
-- However, less than 40% of the CPI reflects thing that are in the PPI, so we may not seen a higher
CPI for some time because of several factors --
including retailers and others near the consumer absorbing higher costs.
Agreed, which would suggest continued job growth stagnation, in order to maintain productivity.
Posted by: Stirling Newberry on February 25, 2004 08:12 AM