Indexes of Consumer Confidence Are Growing, Sentiment has Surpassed Its Pre-Recession Level

Recently  released measures of consumer sentiment indicate that consumers’ confidence is  growing. Thomson Reuters and the  University of Michigan reported that its Consumer Sentiment Index rose by 5.5% to settle at 82.6. This is the fourth consecutive monthly gain for the index. By comparison, the Consumer Confidence Index, produced by the Conference Board, grew by 5.7% over the month of October, its third consecutive monthly increase. Improvement in the Consumer Confidence Index largely reflected a rise in consumers’ views of the present situation relative to their expectations of the future. Consumers’ appraisal of the present situation over the month of October rose by 15.4% while their confidence in the future improved by only 1.8%. Although both the Consumer Confidence Index and the Consumer Sentiment Index have shown sustained improvement since 2009, even exhibiting a quick recovery after the federal debt ceiling was raised in late 2011, the Consumer Confidence Index is still 79.7% of its pre-recession level, but the Consumer Sentiment Index has surpassed its precession level by 8.5%.

Despite consumers’ improved assessment of present conditions, they remain relatively  more optimistic about the future. The Consumer Confidence Index of Present Conditions is 26.8 points below the Consumer Confidence Index of Expectations. While consumers’ views of the present have steadily improved since February 2009, their expectations for the future have risen faster. Since February 2009, consumers’ views of present conditions has grown by 36.0 points, but their expectations of the future rose by 55.6 points. Immediately following recessions, consumers tend to be more sanguine about the future relative to the present, but consumers’ views of the present ultimately exceeds their expectations for the future.

Recent changes in consumers’ views of the present situation partly reflect their assessment of the present employment situation. Although a greater share of respondents continue to cite jobs as “hard to get” as opposed to “plenteous”, this gap has narrowed. Since peaking in November 2009, the difference between the share of respondents citing jobs as “plenteous” relative to the percent that describe jobs as “hard to get” has fallen by 17.0 percentage points. The convergence in consumers’ perception of the present employment situation is the result of a decline in the number of consumers holding the view that jobs are “hard to get” and an increase in the number of consumers that believe jobs are “plenteous”. Since November 2009, the share of respondents describing jobs as “hard to get” has fallen by 9.8 percentage points to 39.4% while the share of consumers that believe jobs to be “plenteous” has risen by 7.2 percentage points to 10%. Despite starting from a very low level, the recent growth in optimism over the present employment situation should ultimately influence consumers’ willingness to spend.



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