Michael Santoli

Are Consumers ‘Confident’ or Just Less Peeved?

Michael Santoli

Consumers have finally regained the confidence lost during the Great Recession. But how good a mood are Americans really in?

The latest Conference Board Consumer Confidence survey this month hit its highest level since February 2008, the month before Bear Stearns’ failure triggered the chain reaction that resulted in the financial crisis, global recession and market implosion.

Yet the fresh confidence reading, at 76.2 – while up smartly from 69 a month ago and stronger than the consensus forecast – only brings consumer attitudes slightly above where they used to settle in the middle of previous, more typical recessions. From this angle, folks are not so much outright confident but just marginally less ticked off.

The breakdown

Based on a breakdown of the historical data by Doug Short at www.AdvisorPerspectives.com, consumer confidence averaged 79 while the prior four recessions since 1980 were underway. During the latest downturn’s official 18-month duration from late 2007 through early 2009, confidence plunged to new all-time lows by a wide margin, and averaged 54. The recent confidence level is indeed lower than 77% of all non-recession months since the survey began in 1985.

The deeply negative mindset reflected the far harsher economic realities, in terms of job losses, home foreclosures and burdensome debt loads of the recent recession. Yet there also has been a longer-term downtrend in what constitutes the “average” level of confidence.

The starting level of 100 is indexed to 1985, meant as an “average” confidence reading. Yet for much of the recoveries of the early 1990s and early 2000s, confidence struggled to reach triple digits and remains far below that now. Using some statistical tools to account for the long-term trend, Short figures today’s “average” confidence reading is probably more like 78.6 rather than 100.

So maybe today’s optimism levels aren’t as good as it gets but closer to the middle of the recent range. One can no longer easily argue, as some bullish stock-market commentators have in recent years, that the dour confidence readings were a good contrarian indicator for stocks. The trend of “lower lows and lower highs” for confidence appears linked to longer-term economic performance, which in turn has much to do with demographics.

The last two post-recession periods have seen slower job growth and more subdued gains in gross domestic product than used to be the rule in economic expansions. Not coincidentally, the growth in the working-age population peaked in the mid-1980s. So, it’s not entirely your imagination – the country is growing a bit grouchier as it ages.

The grudging improvement in consumer mood fits with a general sense that companies and financial markets are faring better than the typical American household. It took more than five years for consumer confidence to regain its pre-crisis threshold.

Yet CEO confidence got there by 2010. Total economic activity as measured by real gross domestic product and annual corporate profits collected got “back to even” by late 2011. And the Standard & Poor’s 500 index surpassed its pre-crisis February 2008 level early last year, on its jagged way to the present all-time highs.

If there is a bright side to the middling consumer survey results lately, it is that we are nowhere near the kind of overconfidence that in the past has been associated with excessive consumer recklessness preceding economic downturns.

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