October Consumer Confidence: A Very Low Plateau

October 26, 2010 – The Conference Board’s Consumer Confidence Index rose by 1.6 index points to 50.2 in October. October’s increase failed to fully offset September’s decline of 4.6 index points.

For context, confidence reached an all-time record low of 25.3 in February 2009 – four months before the trough of the last recession (Chart 1). (The record starts in 1967.)

Chart 1. The Consumer Confidence Index. February 1967 through October 2010.

Confidence revived to almost 55 by May last year. Since then, it has been volatile, but essentially flat – fluctuating on a very low plateau. By broader historical standards, these are still recessionary levels for consumer confidence.

Historically, consumer confidence and the 12-month trend in real consumption growth have tended to move in the same general direction, but not always in perfect step (Chart 2).

Chart 2. The Consumer Confidence Index and real consumption growth. January 1967 to date.

In the 12 months through August (the latest available), real consumption rose by an anemic 1.2%. (We’ll get the September data next week.)

Although they have been weak, the recent trends in real consumption growth still look like a substantial improvement compared to the 2% to 2.5% 12-month declines that prevailed from March through June last year.

Developments in the labor market have always been the dominant force behind consumer confidence. A sure route to more confident consumers (as well as more consumption growth) would be stronger job growth.

Suzanne Rizzo