Consumer Confidence Trends

Consumer confidence has fallen sharply as the nation’s retailers hope to make up some ground lost to the coronavirus (COVID-19) pandemic with a robust holiday shopping season.

The Conference Board’s overall Consumer Confidence Index declined only slightly, buoyed by long-term expectations for the economy. But as for the short-term, many people are significantly less optimistic.

The Expectations Index – based on consumers' short-term outlook for income, business, and labor market conditions – fell from 98.2 in October to 89.5 this month, a fairly significant one-month decline.

"Consumer confidence declined in November, after remaining virtually flat in October," said Lynn Franco, senior director of Economic Indicators at The Conference Board. "Heading into 2021, consumers do not foresee the economy, nor the labor market, gaining strength. In addition, the resurgence of COVID-19 is further increasing uncertainty and exacerbating concerns about the outlook."

Spike in COVID-19 cases

During the time that the survey was taken by Nielson, the country was recording more than 100,000 new cases of COVID-19 each day, the fastest rate since the beginning of the pandemic. The surge prompted governors in some states to renew restrictions on some businesses and to limit public gatherings.

The Conference Board notes that consumers have grown less optimistic about the short-term outlook for the economy and their personal circumstances. When asked if business conditions would improve over the next six months, only 27.4 percent said they would. In October, 36 percent gave an affirmative answer.

By the same token, those predicting things would get worse rose from 15.9 percent in October to 19.8 percent this month. The growing pessimism comes amid a record rally on Wall Street, with the Dow Jones Industrial Average closing above 30,000 for the first time on Tuesday.

Consumers' optimism about the job market also eroded in just the last month. In October, 32 percent expected to see more job opportunities in the months ahead -- this month only 25.9 percent do.

But the drop in confidence, at this point at least, doesn’t appear to be based on personal experience. While the percentage of consumers expecting an increase in income was virtually unchanged at 17.6 percent, there were fewer people who expect to lose income over the next few months.

Consumer confidence fell slightly in October but still remains fairly high, considering America is in the midst of an uncertain election campaign and a raging pandemic.

The Conference Board’s Consumer Confidence Index retreated from 101.3 in September to 100.9. Consumers appear to feel pretty good about the way things are at the moment but less certain about the short-term future.

The Present Situation Index – based on consumers' assessment of current business and labor market conditions – increased significantly from 98.9 to 104.6 in October. However, the Expectations Index – based on consumers' same view for future months – dropped from 102.9 in September to 98.4 this month.

The wave of coronavirus (COVID-19) cases is getting higher, requiring some jurisdictions to tighten restrictions again. New cases of the virus have increased by nearly 70,000 per day this week.

The seven-day average of new cases is also rising, suggesting the wave is building momentum. The seven-day average is up 20 percent in just the last week.

Little economic momentum

"Consumers' assessment of current conditions improved while expectations declined, driven primarily by a softening in the short-term outlook for jobs,” said Lynn Franco, senior director of economic indicators at The Conference Board. “There is little to suggest that consumers foresee the economy gaining momentum in the final months of 2020, especially with COVID-19 cases on the rise and unemployment still high."

The metrics employed by The Conference Board definitely show doubts beginning to cloud consumers’ outlook as 2020 draws to a close. Those expecting business conditions will get worse in the coming weeks increased from 15.8 percent to 17.0 percent. 

Optimism about the job market was mixed. There was a slight increase in those who expect there to be more jobs available in the months ahead, but the increase was slight. 

Regarding the short-term income outlook, the percentage of consumers expecting an increase improved from 17.3 percent to 18.4 percent, but the proportion expecting a decrease also rose, from 13.0 percent to 14.2 percent.

Consumers appear to be feeling a lot more confident heading into the fall months, despite an uncertain election season, spiking cases of the coronavirus (COVID-19), and the prospect of more businesses falling victim to the pandemic.

The Conference Board reports its Consumer Confidence Index for September leaped higher after falling in both July and August. The September index was 101.8 compared to 86.3 in August.

"Consumer Confidence increased sharply in September, after back-to-back monthly declines, but remains below pre-pandemic levels," said Lynn Franco, senior director of Economic Indicators at The Conference Board. "A more favorable view of current business and labor market conditions, coupled with renewed optimism about the short-term outlook, helped spur this month's rebound in confidence. 

But where did that confidence come from? During the month, schools wrestled with the question of whether to return children to the classroom, creating more uncertainty for working parents.

September’s headwinds

Congress essentially gave up on efforts to reach agreement on a new round of pandemic relief measures after Democrats and Republicans found themselves trillions of dollars apart on how much to spend.  

Throughout September, there were more than 800,000 Americans each week applying for unemployment benefits, suggesting the labor market wasn’t getting much better.

Despite all that, consumers expressed greater optimism about their short-term financial prospects, which Franco says may help keep spending from slowing further in the months ahead.

The report suggests that, from the average consumer’s perspective, September was a lot better than August. The percentage of consumers claiming business conditions are "good" increased from 16 percent to 18.3 percent, while those claiming business conditions are "bad" decreased from 43.3 percent to 37.4 percent. 

Brighter view of the job market

Consumers even think the job market is getting better. The percentage saying jobs are "plentiful" increased from 21.4 percent to 22.9 percent, while those claiming jobs are "hard to get" decreased from 23.6 percent to 20.0 percent.

Consumers are even more optimistic about the short-term future. The percentage of consumers expecting business conditions to improve over the next six months increased from 29.8 percent to 37.1 percent, while those expecting business conditions to worsen decreased from 20.7 percent to 15.8 percent. 

Consumers even expect the labor market will improve in the coming weeks. We’ll find out Friday if the labor market improved in September when the Labor Department releases the month’s employment report. The unemployment rate fell to 8.4 percent in August.

Consumers’ attitudes about the economy took a sharp turn this month on the heels of declining confidence recorded in July.

The Conference Board reports that its Consumer Confidence Index for August fell to 84.8 from 91.7 in July. Consumers appear to be most concerned about current conditions, with the Present Situation Index falling nearly 11 points to 84.2.

The Expectations Index -- based on consumers' short-term outlook for income, business, and labor market conditions -- also fell, but not by much; it dropped from 88.9 in July to 85.2 this month.

"The Present Situation Index decreased sharply, with consumers stating that both business and employment conditions had deteriorated over the past month,” said Lynn Franco, senior director of Economic Indicators at The Conference Board. “Consumers' optimism about the short-term outlook, and their financial prospects, also declined and continues on a downward path.”

Something else may be at work. The expiration of some benefits under the CARES Act -- particularly the extra $600 a week in unemployment benefits -- likely weighed heavily on consumers’ economic concerns.

Those benefits, plus the $1,200 direct payment to every adult in the second quarter, could have buoyed consumers’ confidence in the early months that they were going to navigate the financial turmoil caused by the coronavirus (COVID-19) pandemic.

Reality check

The fact that Congress was unable to reach an agreement on extending some of the benefits before leaving on a month-long vacation may have served as a reality check for struggling small business owners and employees thrown out of work.

Franco says the data presents a mixed picture. On one hand, consumers are still behaving as though things are under control. The latest survey suggests that could change in the weeks ahead.

“Consumer spending has rebounded in recent months but increasing concerns amongst consumers about the economic outlook and their financial well-being will likely cause spending to cool in the months ahead," Franco said.

Consumers are also expressing growing doubts about the job market. The percentage of consumers saying jobs are "plentiful" declined from 22.3 percent to 21.5 percent, while those claiming jobs are "hard to get" increased from 20.1 percent to 25.2 percent.

As coronavirus (COVID-19) cases surged in June, consumers’ confidence in the economy tumbled in July.

The Conference Board’s monthly Consumer Confidence Index fell to 92.6 from 98.3 in June. Creeping doubts about the economic future apparently led to the sharp decline.

When asked how things are at the moment, consumers actually had an improved outlook. The Present Situation Index, based on how consumers feel about current business and labor conditions, rose from 86.7 to 94.2.

But the Expectations Index – based on consumers' outlook for the short-term future -- plunged from106.1 in June to 91.5 this month. Lynn Franco, senior director of Economic Indicators at The Conference Board, says optimism was growing in June following a sharp rebound in the economy. Then, reality apparently set in.

“Large declines (in confidence) were experienced in Michigan, Florida, Texas, and California, no doubt a result of the resurgence of COVID-19,” Franco said. “Looking ahead, consumers have grown less optimistic about the short-term outlook for the economy and labor market and remain subdued about their financial prospects. Such uncertainty about the short-term future does not bode well for the recovery, nor for consumer spending."

Things seem to be okay at the moment

Economists may take some solace in consumer attitudes about how things are now. The concerns consumers expressed to survey-takers are about what could happen in the future, not how things were going this month.

In fact, the percentage of consumers saying business conditions are "good" was relatively unchanged at 17.3 percent, while those claiming business conditions are "bad" fell from 42.5 percent to 39.1 percent. 

Despite persistently high unemployment, consumers' assessment of the job market was increasingly favorable. The percentage of consumers saying jobs are "plentiful" increased from 20.5 percent to 21.3 percent, while those claiming jobs are "hard to get" decreased from 23.3 percent to 20.0 percent.

Trouble ahead

It’s clear from the survey that many consumers see trouble ahead. When the survey was completed at mid-month, it was uncertain whether Congress would extend extra unemployment benefits for millions that are scheduled to expire at the end of the month.

It’s now fairly certain that some type of extension is in the works, though Republicans and Democrats are still at odds over how much the extra payments should be. Meanwhile, both parties and the White House appear to favor another direct payment to every American adult to stimulate the economy.

At mid-month, however, consumers were not at all optimistic about the short-term future. The percentage of consumers expecting business conditions to improve over the next six months declined from 42.4 percent to 31.6 percent.

Consumers were significantly more confident in June, according to The Conference Board’s Consumer Confidence Index. But after the coronavirus (COVID-19) shutdown, maybe “up” was the only place confidence could go.

After remaining virtually unchanged in May from April’s dreary number, the index rose from 85.9 to 98.1. An index reading of 100 is considered the benchmark for a positive outlook. Consumers’ assessment of the present situation showed the biggest improvement, rising nearly 18 points. The outlook for the short-term future increased from 97.6 in May to 106.0 in June.

The index is based on random consumer surveys conducted by Nielson, which asked about a variety of business, labor, and general economic trends.

While confidence improved last month, Lynn Franco, senior director of Economic Indicators at The Conference Board, says the index is far below its bull position in February, before the pandemic began to force an economic shutdown.

"The reopening of the economy and relative improvement in unemployment claims helped improve consumers' assessment of current conditions, but the Present Situation Index suggests that economic conditions remain weak,” Franco said. 

Economic activity still low

While consumers appear to be less pessimistic about the short-term outlook, Franco says they don’t appear to believe there will be a significant turnaround in economic activity.

“Faced with an uncertain and uneven path to recovery, and a potential COVID-19 resurgence, it's too soon to say that consumers have turned the corner and are ready to begin spending at pre-pandemic levels," she said.

A stock market rally shrugging off day-after-day of bad news could be one thing lifting people’s spirits, especially if they have a stock portfolio or retirement accounts invested in stocks. But there have been plenty of unpleasant reality checks, including the government’s report this week that nearly half of Americans don’t have a job.

Less pessimistic

Perhaps the best you can say is that consumers’ short-term outlook was less pessimistic in June. The percentage of consumers expecting business conditions will get better over the next six months was virtually unchanged at 42.6 percent. At the same time, there was a marked drop in consumers who expect things to get worse.

The June survey also uncovered an element of realism. Few are expecting a sharp bounce-back the way Wall Street may be envisioning it. 

But when it comes to their short-term income prospects, the percentage of consumers expecting an increase improved from 14.6 percent to 15.1 percent, while the proportion expecting a decrease declined from 15.4 percent to 14.4 percent.

While the economy faces enormous challenges in the months ahead, consumers seem to think things will get better sooner than most experts have predicted.

The Federal Reserve’s May Survey of Consumer Expectations shows small signs of improvement in households’ expectations compared to April. Consumers expect prices to rise over the next year but think the labor market will get slightly better in the months ahead.

As the stock market surged, even in the absence of encouraging data, consumers' mood seemed to reflect that optimism. Consumers are more upbeat about employment opportunities, even as company after company warned that its earnings would slide.

At the same time, consumers’ outlook was not completely rosy. Their perceived and expected availability of credit continued to worsen. Median inflation expectations increased at the one-year horizon and remained stable at the three-year horizon.

Inflation expectations

The expectation for inflation at the one-year horizon increased by 0.4 of a percentage point to 3.0 percent in May. Median expectations for inflation three years from now remained unchanged at 2.6 percent. 

The expectation for home prices improved slightly. In April, there was not much sentiment for rising home prices; however, consumers improved their outlook in May, suggesting prices could rise by 0.6 percent. The slight increase was driven mostly by respondents who live in the West and Northeast Census regions.

In spite of the widespread layoffs and surge in unemployment, consumers appear to believe the employment picture is improving. Median year-ahead household income growth expectations increased from 1.9 percent in April to 2.1 percent in May after declining for three consecutive months. 

Even so, that number is considerably lower than its year-ago level of 2.8 percent. A quarter of respondents expect a decrease of at least 0.3 percent in their household incomes over the next 12 months.

A return to household spending

But in spite of all the headwinds to the economy that have increased over the last three months, consumers expect their median household spending to increase by 0.7 percent, even as it remains below its year-over-year average of  3.5 percent.

Most consumers don’t expect to see an improvement in access to credit anytime soon. Perceptions of credit access compared to a year ago deteriorated for the third consecutive month, with almost half of respondents reporting that credit is harder to get today than a year ago. 

Expectations for year-ahead credit availability also worsened, with fewer respondents expecting credit will become easier to obtain.

Despite the fast-spreading coronavirus that’s sickening and killing thousands around the world and plunging financial markets into turmoil, consumers remain remarkably confident.

The Conference Board reports that its Consumer Confidence Index, based on consumers' assessment of current business and labor market conditions, rose slightly in February after another gain in January.

The index rose to 130.7 despite the fact that consumers’ short-term outlook for business and employment conditions suffered a significant dip.

But that was more than offset by a sharp rise in the Expectations Index, which measures consumers' short-term outlook for income, business and labor market conditions in the months ahead. That rose more than six points.

"Despite the decline in the Present Situation Index, consumers continue to view current conditions quite favorably,” said Lynn Franco, senior director of Economic Indicators. “Consumers' short-term expectations improved, and when coupled with solid employment growth, should be enough to continue to support spending and economic growth in the near term.

‘Glass is half-full’

The February report seems to indicate a “glass is half-full” sensibility among consumers. They generally think the present situation isn’t as good as it should be, but they’re optimistic about the short-term future.

Consumers who describe business conditions as "good" declined from 40 percent to 38.6 percent. Those saying business conditions are "bad" rose from 10.4 percent to 11.9 percent. 

Consumers weren’t as bullish on the job market this month. Those saying jobs are "plentiful" fell from 47.2 percent to 44.6 percent, while those claiming jobs are "hard to get" increased from 11.9 percent to 14.8 percent.

Despite that finding, consumers generally expect their fortunes to improve in the near future. More than 20 percent expect business conditions to be better in six months, up from a little more than 18 percent in January. There was also a decline in the percentage of consumers expecting business conditions to get worse.

Didn’t fully measure the market sell-off

The February survey was mostly conducted before this week’s dramatic stock market plunge over concerns about the coronavirus, codenamed COVID-19. Economist Joel Naroff, of Naroff Economic Advisors, says the market turmoil could have an impact in the near future.

“Consumers remain confident, but continued declines in the equity markets are likely to test their resolve,” Naroff wrote on his blog.

Naroff also sees a warning in the data. The drop in the Present Situation Index in February signals some consumer discomfort with the economy. Unless the stock market bounces back quickly, he says the March report could show a less confident consumer.

After dipping in November, consumer confidence has increased for two straight months. The Conference Board’s Consumer Confidence Index rose nearly three points to 131.6 in January after a smaller increase in December.

The biggest boost to confidence came from consumers’ feelings about their present situations.  Lynn Franco, the senior director of Economic Indicators at The Conference Board, says the back-to-back increases in confidence are the result of a robust job market.

"Optimism about the labor market should continue to support confidence in the short-term and, as a result, consumers will continue driving growth and prevent the economy from slowing in early 2020," she said.

Consumers who say jobs are "plentiful" increased from 46.5 percent to 49.0 percent in January. At the same time, those who believe jobs are "hard to get" declined from 13.0 percent to 11.6 percent.

Optimism on the part of consumers has driven the economy over the last year as business investment has declined. Consumers came through for the nation’s retailers during the recent holiday shopping season after businesses feared a drop in sales because of the shorter shopping period.

But much of the increase came online. A late December report by Mastercard showed that U.S. online sales finished at record-high levels, growing by 18.8 percent over 2018. 

Optimistic start to 2020

Consumers' optimism has carried into 2020, as the latest Conference Board report shows an increasing number of consumers believe business conditions are improving. Those saying business conditions are "good" increased from 39.0 percent to 40.8 percent, while those claiming business conditions are "bad" decreased from 11.0 percent to 10.4 percent. 

There’s no doubt that a low unemployment rate and rising average hourly earnings make consumers feel a little more secure in the short term, but what about the months ahead? The Conference Board survey suggests the good feelings could last a while longer.

The survey shows the proportion of consumers expecting more jobs in the months ahead increased from 15.5 percent to 17.2 percent. Those who expect fewer jobs declined from 13.9 percent to 13.4 percent. 

Regarding their short-term income prospects, the percentage of consumers expecting an improvement declined from 22.7 percent to 22.0 percent, while the proportion expecting a decrease was virtually unchanged at 7.7 percent.

While other pillars of the economy have become wobbly in the second half of the year, it’s been consumers who have kept the economy humming through their spending habits.

But lately, there are signs consumers may be running short of enthusiasm. The Conference Board reports that its Consumer Confidence Index declined slightly in October for a second straight month.

The decline was minor, and the Index still stands at a healthy 125.9, down from 126.3 in September. But it’s clear that consumers are beginning to express some doubts about the future. The Expectations Index – based on consumers' short-term outlook for income, business and labor market conditions – declined from 96.8 last month to 94.9 this month.

"Consumer confidence was relatively flat in October, following a decrease in September," said Lynn Franco, director of Economic Indicators at The Conference Board. "The Present Situation Index improved, but expectations weakened slightly as consumers expressed some concerns about business conditions and job prospects. However, confidence levels remain high and there are no indications that consumers will curtail their holiday spending."

Good news for retailers

That comes as good news for retailers who are benefitting from consumers’ upbeat mood. Over the last few days, as publicly traded companies have reported third-quarter earnings, it has been consumer staples that have performed the best, along with health care.

There’s no doubt that consumers’ optimism has been fed by low oil prices, which have produced relatively low gasoline prices that are about 22 cents a gallon lower than they were at this time last year.

On the positive side of the ledger, there was an increase this month in the number of consumers who say current business conditions are “good.” There were also fewer consumers labeling business conditions as “bad.”

But consumers' assessment of the job market was mixed. There were slightly fewer consumers saying job openings are “plentiful” and more who said jobs are “hard to get.”

And if consumers think times are good, they seem less sure about how long that will last. The percentage of consumers who think business conditions will improve over the next six months fell from 20.0 percent to 18.6 percent.

Consumers have been major contributors to economic growth this year, but their optimism appears to be waning a bit.

The Conference Board’s monthly Consumer Confidence Index, a gauge of how consumers feel about the economy, lost significant ground in September after a slight decline the month before. The index is a still-respectable 125, but it was 134.2 in August.

"Consumers were less positive in their assessment of current conditions and their expectations regarding the short-term outlook also weakened,” said Lynn Franco, senior director of Economic Indicators at The Conference Board. 

Franco thinks the ongoing trade war with China and the escalation of tariffs at the end of August shook consumers’ confidence. Robert Frick, corporate economist at Navy Federal Credit Union, agrees with that assessment, adding that trade tensions have morphed into trade anxiety.

“The Index dropped significantly this month, which does not bode well for consumer spending, especially combined with the weakening numbers in the  Consumer Sentiment Index, which also pointed to worries over the trade situation,” Frick said in an email to ConsumerAffairs. “The trade war ratcheted up significantly in both rhetoric and tariffs.”

More reliance on consumers

Frick says the fact that the manufacturing sector is contracting and the job market is softening means consumers are being relied upon even more to keep the economy moving.

“We'll see how this affects consumer spending in the months to come, though we may have had a taste of lower spending already--retail sales were flat in August after deducting for a surge in car sales,” Frick said.

Specifically, the Conference Board monthly survey found consumers' appraisal of current economic conditions is less favorable than it was a month before. There was a slight decrease in the number of consumers who said business conditions are “good” and a slight increase in those who said conditions were “bad.”

Questions about the job market

Consumers also seem to be more wary of employment conditions, with the percentage of those saying jobs are plentiful falling from 50.3 percent to 44.8 percent.

Franco says the erosion of confidence was not unexpected, especially in light of trade tensions. She says consumers’ confidence in the economy may have plateaued for the year.

“While confidence could continue hovering around current levels for months to come, at some point this continued uncertainty will begin to diminish consumers' confidence in the expansion,"  Franco said.