Is Everybody Happy?

June 27, 2014

Consumers have been regaining confidence and feeling better about the jobs market. For instance, the Conference Board’s Consumer Confidence Index rose to a six-and-a-half year high in June. Moreover, their expectations for the next six months improved to a 10-month high. The Thomson Reuters/University Consumer Sentiment Index ticked up as well in June, but not at record levels.

In addition, the ongoing recovery in the labor market has made people feel more comfortable about the job market. As the figure below shows, the share who thought jobs were plentiful has been trending up starting in 2010 to 14.7 percent in June which is the most seen since May 2008. (Although, almost 54 percent of consumers in June still feel jobs are scarce.)

June Confidence

One downside to the Consumer Confidence report is that people under the age of 35, otherwise known as “Millennials,” lost confidence in the economy in June. They represented 28% (65.6 million) of the population 20 years and older in 2013 with the largest 5-year cohort among all ages at 20 to 24 (22.8 million), according to recently-released estimates by the Census Bureau. Their unemployment rates were 8.1% and 11.1%, respectively, as of May this year. This helps explain why households under 35 have a homeownership rate of only 36.2% in the first quarter of 2014 and they just may be those that feel jobs are scarce.


Measures of Consumer Confidence Mixed – Again

March 28, 2014

March was another month of mixed results for consumer confidence. The Consumer Confidence Index increased after a falling in February. The Consumer Sentiment Index fell after increasing in February.

According to the Conference Board the Consumer Confidence Index jumped 4.0 points on a month-over-month seasonally adjusted basis in to 82.3. The rebound from February was attributed to improved expectations for economic conditions in the short-term. Consumers were more upbeat about jobs and the overall economy conditions, but remain less optimistic about income growth. Income growth remains a challenge for the housing industry moving forward, especially for first-time home buyers.

According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index fell in March by 1.6 points from the prior month. The drop was attributed to softening of the long-term economic outlook by consumers.

Chart1

According to the Conference Board, the share of consumers planning to buy a home in the next 6 months was 5.5% on a seasonally adjusted 3-month moving average basis. The share of respondents planning to purchase a “lived-in” home was 3.4% on a seasonally adjusted 3-month moving average basis. The share of respondents planning to purchase a new home was 1.3% on a seasonally adjusted 3-month moving average basis. All measures were down from the prior month, but an improvement over one year ago.

Chart2

An unusually cold winter may have attributed to another month of mixed result in measures of consumer confidence. However, unanswered questions remain about consumer confidence as it pertains to the housing market. In the upcoming year, interest rates and income growth will play an important role not only in the housing sector but also in the broader economic recovery.


February Measures of Consumer Confidence Mixed

February 28, 2014

February was a month of mixed results for consumer confidence as the Consumer Sentiment Index increased while the Consumer Confidence Index decreased slightly. After a slide in late 2013, both measures have shown resilience in the face of extreme weather and high utility bills.

According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index increased in February by 0.4 points from the prior month. Meanwhile after increasing in January, the Conference Board reported that the Consumer Confidence Index fell by 1.3 points on a month-over-month seasonally adjusted basis in to 78.1.

Chart_1

The month-over-month decline in the Consumer Confidence Index was attributed to concern over the short-term economic outlook. In spite of this concern, the Present Situation Index is at its highest level since April 2008. The Present Situation Index is a sub-index of the survey in which participants are asked about current economic conditions.

Chart_2

According to the Conference Board, the share of consumers planning to buy a home in the next 6 months was 5.9% on a seasonally adjusted 3-month moving average basis. Over this same period, the share of respondents planning to purchase a “lived-in” home increased slightly to 3.4%. The share of respondents planning to purchase a new home was 1.0%.

Chart_3

The mixed result in measures of consumer confidence does not provide clarity to the broader economic outlook. Instead, questions remain on strength of the labor market and lagging income growth for younger age groups.


Consumer Confidence Mixed

January 28, 2014

Measures of consumer confidence were mixed in the most recent release. The Conference Board reported that the Consumer Confidence Index increased by 3.2 points on a month-over-month seasonally adjusted basis in December to 80.7. Meanwhile, according to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index fell by 2.1 points.

Chart_1

The month-over-month improvement in the Consumer Confidence Index was attributed to favorable assessment of the current business conditions. The drop in the Consumer Sentiment Index was attributed to the concern of insufficient growth in income. Looking ahead, respondents of both surveys remain concerned with insufficient job growth.

According to the Conference Board, the share of consumers planning to buy a home in the next 6 months was 6.0% on a seasonally adjusted 3-month moving average basis. Over this same period, the share of respondents planning to purchase a “lived-in” home increased slightly to 3.2%. The share of respondents planning to purchase a new home was 0.9%.

In a related survey, the Survey of Consumer Expectations (CSE), the Federal Reserve Bank of New York produces a monthly series on consumer’s views on the labor market and household finance. The survey also includes data on the expectation of consumers to changes in home prices.

Chart_2

Results from the December 2013 survey find that the median expected home price change one-year ahead was 3.88%. Expectations differed by region, with the highest median expected home price change of 4.77% in the South. The lowest median expected home price change was 3.02% in the Midwest. The expectations appear to be consistent with recent data showing home prices increasing at a more moderate pace.

Chart_3

Mixed results from measures of consumer confidence during the final month of 2013 should not be a surprise. In 2013, many consumers saw significant appreciation in home values and above average gains in the stock market. These increases, however, were not accompanied by significant improvement in labor market conditions. The results suggest consumers are cautiously optimistic but remain concerned with lackluster growth in income and jobs.


Consumer Confidence Rebounds in December

December 31, 2013

Measures of consumer confidence improved in December reversing course from the recent decline. The Conference Board reported that the Consumer Confidence Index increased by 6.1 points on a month-over-month seasonally adjusted basis in December to 78.1. Meanwhile, according to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index rose by 7.4 points in December.

Chart_1

In addition to current economic conditions, the Conference Board surveys consumers’ future expectations. Consumers are asked whether they expect economic conditions in 6 months to improve, worsen, or stay the same.

Consumes’ expectations for business conditions improved in December. The respondents expecting business conditions to improve increased by 0.5 percentage points while the respondents expecting business conditions to worsen decreased by 2.1 percentage points.

Consumers’ expectations for the labor market were considerably more optimistic in December.  The respondents expecting labor market conditions to improve increased by 4 percentage points while the respondents expecting labor market conditions to worsen decreased by 2.4 percentage points.

Chart_2

According to the Conference Board, the share of consumers planning to buy a home in the next 6 months was 5.8% on a seasonally adjusted 3-month moving average basis. Over this same period, the share of respondents planning to purchase a “lived-in” home decreased slightly to 3.0%. The share of respondents planning to purchase a new home increased to 1.0%.

Chart_3

The December rebound in measures of consumer confidence was a welcome result. The recovery appears to be back on track; however, questions still remain about the strength of the labor market and the effect on mortgage interest rates from the recent decision of the Federal Open Market Committee (FOMC) to wind down its asset purchase program. These questions will be answered in 2014.


Consumer Confidence on Three Month Slide

November 27, 2013

Measures of consumer confidence continued to slide in November falling for the third straight month. The Conference Board reported that the Consumer Confidence Index fell by 2 points on a month-over-month seasonally adjusted basis in October to 70.4. Meanwhile, according to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index fell by 1.2 points in November. Although the rate of decline slowed in November, the question is whether the readings show a softening economy or a short-term reaction to the government shut-down.

Chart1

In addition to current economic conditions, the Conference Board surveys consumers’ future expectations. Consumers are asked whether they expect economic conditions in 6 months to improve, worsen, or stay the same. Although the overwhelming majority of consumers expect conditions to stay the same, more respondents expect business conditions to improve at 17.7% than worsen at 14.9%. Fewer respondents expect employment conditions to improve at 14.9% than worsen at 21.1%. The share of respondents expecting income to increase was nearly identical to the share expecting income to decrease at just above 15%.

Chart2

According to the Conference Board, the share of consumers planning to buy a home in the next 6 months was 5.7% on a seasonally adjusted 3-month moving average basis. Over this same period, the share of respondents planning to purchase a “lived-in” home decreased slightly to 3.3%. The share of respondents planning to purchase a new home increased slightly to 0.9%.

Chart3

The housing market has been bolstered by low interest rates and tight housing supply, however three straight months of declining consumer confidence are concerning. Consumer spending during the Holiday season should provide us with a better understanding of the nature of the recent decline in consumer confidence.


Consumer Confidence Falls Again

October 29, 2013

Measures of consumer confidence fell for the second straight month in October. According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index fell in October to 73.2 the lowest reading since December 2012. The Conference Board reported that the Consumer Confidence Index fell sharply by 9 points, 11.2%, on a month-over-month seasonally adjusted basis in October to 71.2.

Chart_1

Consumer confidence was shaken largely by the partial government shutdown and debt-ceiling crisis. Although a stopgap measure was signed, consumer confidence is likely to be volatile in the upcoming months as Congress revisits the budget and debt-ceiling.

In spite increasing consumer pessimism on business and labor market conditions, the housing market has been bolstered by low interest rates. However, the majority of consumers believe interest rates will increase. According to the Conference Board the share of respondents expecting higher interest rates in the next 12 months was 66.2% on a seasonally adjusted 3-month moving average basis.

Chart_2

Rising interest rates and policy uncertainty may also be negatively affecting homebuyer expectations. According to the Conference Board, the share of consumers planning to buy a home in the next 6 months was 5.8% on a seasonally adjusted 3-month moving average basis. Over this same period, the share of respondents planning to purchase a “lived-in” home was 3.4% while the share of respondents planning to purchase a new home was 0.8%. These measures were all down from the prior month.

Chart_3


Consumer Confidence Falls

September 27, 2013

Measures of consumer confidence fell in September following strong growth at the start of the year and a summer of mixed signals. The Conference Board reported that the Consumer Confidence Index decreased by 2.1 points, 2.6%, on a month-over-month seasonally adjusted basis in September to 79.7. According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index fell in September by 4.6 points from the previous month and nearly 9% from six-year high of 85.1 in July.

Chart_1

Both measures fell in large part as consumers grew more pessimistic about jobs and earnings. According to the Conference Board, the share of consumers expecting fewer jobs increased at the same time the share expecting an increase in incomes decreased. In September, 15.4% anticipated an increase in income over the next 6 months down from 17.5% in August.

In spite the decline in consumer confidence, according to the Conference Board, the share of consumers planning to buy a home in the next 6 months increased to nearly 6% in September on a seasonally adjusted 3-month moving average basis. Over this same period, the share of respondents planning to purchase a “lived-in” home increased to 3.7% while the share of respondents planning to purchase a new home was unchanged at 1.1%.

Chart_2

According to the Freddie Mac weekly primary mortgage survey, in September home buyers saw a reprieve from previous increases in mortgage interest rates. However, a majority of consumers still believe interest rates will increase in the next twelve months. According to the Conference Board, the share of respondents expecting higher interest rates increased in September by 2.3 percentage points to 68.4% on a seasonally adjusted 3-month moving average basis. The expectation that interest rates will rise in the next twelve may be pushing up plans to buy a home in the next 6 months in spite of declining consumer confidence.

Chart_3


Consumers Expecting Higher Interest Rates

September 4, 2013

Another set of monthly mixed results for consumer confidence was reported as the Consumer Sentiment Index decreased while the Consumer Confidence Index increased slightly.

According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index fell in August by 3 points from the previous month’s six-year high of 85.1. Meanwhile after declining in July, the Conference Board reported that the Consumer Confidence Index increased slightly by 0.5 points, 0.6%, on a month-over-month seasonally adjusted basis in August to 81.5.

After sustained gains in both indices at the end of 2012 and the start of 2013, both measures of consumer confidence have leveled off in recent months as slow growth continues for employment and the national economy.

Chart_1

According to the Conference Board, the share of consumers planning to buy a home in the next 6 months fell slightly in August. The share of consumers planning to buy a home in the next 6 months fell by 0.1 percentage point to 5.8% on a seasonally adjusted 3-month moving average basis. Over this same period, the share of respondents planning to purchase a “lived-in” home was 3.6% and the share of respondents planning to purchase a new home was 1.1%.

Chart_2

The leveling off in the share of consumers planning to purchase a new home may capture the effect of increasing mortgage interest rates. In fact, the share of respondents expecting higher interest rates in the next 12 months increased in August by 5.4 percentage points to 66.2% on a seasonally adjusted 3-month moving average basis. The last time consumer expectations for higher interest rates were this high was September 2006.

Chart_3


Growing Share of Consumers Plan to Purchase a New Home

August 1, 2013

Measures of consumer confidence continue to report mixed results on a monthly basis. However, over time they are trending in the same direction. According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index rose by 1 point in July to a seasonally adjusted level of 84.1. The final reading of consumer sentiment was revised up from the preliminary reading of 83.9 that was released earlier in the month. Meanwhile, the Conference Board reported that its Consumer Confidence Index fell by 1.8 points, 2.2%, on a month-over-month seasonally adjusted basis in July to 80.3.

The directionally opposite monthly movements recorded by the two measures of consumer confidence in the month of July reflect different conclusions about consumers’ expectations about future conditions. According to the University of Michigan’s Consumer Sentiment Survey, the 5 point increase in consumers’ assessment of current conditions, from an index level of 94 to an index level of 99, was only partially offset by the 1 point decline, 78 to 77, in their view of expected conditions. In contrast, the decline in consumers’ expectations of future conditions according to the Conference Board’s Consumer Confidence Survey, a 6 point drop from an index level of 91 to 85, more than offset the 5 point increase in consumers’ assessment of their present situation.

Presentation1

Despite the sharp decline in consumers’ overall expectations as recorded by the Conference Board, the share of consumers planning to buy a home in the next 6 months rose.  The rising trend in the share of consumers planning to purchase a home largely reflects an increase in the percent of respondents planning to purchase an already “lived-in” home. The share of consumers planning to buy a home in the next 6 months rose by 0.2 percentage points to 5.7% on a month-to-month seasonally adjusted basis. Since January 2011, the percentage of respondents with house purchasing plans has risen from 2.0% to 5.7%. Over this same period, the share of respondents planning to purchase a “lived-in” home rose by 2.2 percentage points while the share of respondents planning to purchase a new home rose by 0.7 percentage points. The portion of respondents that plan to purchase a home, but are uncertain about whether it will be a “lived-in” or a new home (series not shown) also rose by 0.7 percentage points.

Presentation2

The percent of consumers planning to purchase a new home is closely correlated with new home sales while the share of consumers planning to purchase a “lived-in” home is less correlated with single-family existing home sales. The continued increase in the percent of consumers planning on purchasing a new home as shown in Chart 3 may indicate that new home sales will continue to recover. In contrast, the rise in the share of consumers planning to purchase an existing home is not a strong predictor of existing home sales.

Presentation3

Presentation4