Each month the Conference Board, an independent business membership and research association, releases the Consumer Confidence Index which is billed as a “barometer of the health of the U.S. economy from the perspective of the consumer.” The broad index has two components: (1) the Present Situation Index is based on consumers’ perceptions of current business and employment conditions; (2) the Expectations Index which is their expectations for six months hence regarding business conditions, employment, and income. While consumers in aggregate generally have a good handle on what they think about their present situation, their thoughts on the future are much more volatile and easily swayed by positive or negative news flow. As a result, the overall index does not have great predictive power. The Present Situation Index component, however, is less volatile (i.e., smoother white line) than the overall index (yellow line):
It is also more predictive and, according to MKM Partners’ Chief Strategist & Economist Mike Darda, a much better leading economic indicator than the broad Consumer Confidence Index as the index tends to lead payroll growth by 1-2 quarters:
So what is it saying today? The February reading, which had a cutoff date of February 13th, is pretty close to real time sentiment reporting and continues to be at a new high for this business cycle. A key driver of the report was the “Respondents’ appraisal of current employment conditions” which bodes well for continued improvement in the U.S. labor market and continued improvement in the economy at large.
Sources: MKM Partners & The Conference Board | Bloomberg Finance