Consumer Confidence: Not So Happy in November

November 28, 2007 – In yesterday’s data, the Conference Board’s Consumer Confidence Index plunged 7.9 index points to 87.3 in November (Chart 1). That was its lowest level since October 2005, during the aftermath of Hurricane Katrina.

Chart 1. The Consumer Confidence Index. January 2000 through November 2007.

Consumer confidence reached a peak of 111.9 in July this year. (That was its highest level since the end of the last recession.) Since then, in the four months through November, it fell by nearly 25 index points.

Historically, such a large four-month confidence decline has been very rare, unless the economy was either in, or just on the brink of, a recession (Chart 2).

Chart 2. The Consumer Confidence Index. February 1967 through November 2007.

The two exceptions to this “rule” were seen during the “jobless” recoveries that followed the 1990-91 and 2001 recessions.

These data don’t prove that the economy is in a recession, now. They do suggest that consumers may be starting to feel that way.

The crucial question for the economic outlook is whether this collapse in consumers’ good spirits will motivate cuts in their spending (Chart 3).

Chart 3. The Consumer Confidence Index and real consumption growth. January 1967 to date.

As of September (the latest available), real consumption was growing at a fairly robust 3.2%, compared to the same month last year. The October consumption data are coming on Friday.

Suzanne Rizzo