Measures of Consumer Confidence Mixed

Measures of consumer confidence were mixed in April. According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index fell by 2.8% on a monthly seasonally adjusted basis to 76.4. The final reading of consumer sentiment was revised up from the preliminary reading of 72.3 that was released earlier in the month. Conversely, the Conference Board reported that its Consumer Confidence Index rose by 10.1% on a monthly seasonally adjusted basis in April to 68.1. Also, the original March reading, 59.7, was revised up to 61.9. Consumer confidence regained all of the ground that it lost in March. However, over the past twelve months, consumer confidence is lower by 0.8%.

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Consumer sentiment and consumer confidence, measures of consumers view of the economy, have diverged in three of the past four months but, as Chart 1 above illustrates, these two measures of consumer confidence have tracked each other over a longer period of time. Despite displaying a similar long-run trend, the Conference Board’s Consumer Confidence Index displays greater volatility. Between 1996 and 2000 growth in the Conference Board’s measure exceeded growth in the University of Michigan and Thomson Reuters’ measure. A similar pattern occurred between 2006 and 2008. Between 2008 and 2009, the Conference Board’s measure of consumer confidence fell more than the Consumer Sentiment Index.

Both measures of consumer confidence reflect consumers’ assessment of their present situation and their expectations for the future. The Conference Board captures these two viewpoints with its Consumer Confidence Index – Present Situation and its Consumer Confidence Index – Expectations. The University of Michigan and Thomson Reuters separates the information in its headline index with its Consumer Sentiment Index – Current Conditions and its Consumer Sentiment Index – Expected Conditions. The source of the increased volatility displayed by the Conference Board’s Consumer Confidence Index is in its measure of consumers’ assessment of their present situation. Chart 2 illustrates that the Consumer Confidence Index – Present Situation tends to exceed the Consumer Sentiment Index – Current Conditions during upswings and it falls below the Consumer Sentiment Index – Current Conditions during downturns. Meanwhile, Chart 3 shows that Consumer Confidence Index – Expectations and the Consumer Sentiment Index – Expected Conditions track each other closely.

The dissimilarity in the trend of the two sub-indexes measuring consumers’ present situation likely reflects the different focus of the underlying question topics. Conversely, the topics addressed by the two indexes measuring consumers’ expectations capture similar information. The Consumer Confidence Index – Expectations asks survey respondents about their view of business conditions, employment and total family income over the next six months while the University of Michigan and Thomson Reuters’ Consumer Sentiment Index –Expected Conditions asks its survey respondents about their financial condition one year from now and business conditions both one year and five years from now. On the other hand, the Consumer Confidence Index – Present Situation asks consumers about their view of present-day business and employment conditions while the Consumer Sentiment Index – Current Conditions focuses its questions on consumers’ personal financial situation today relative to a year prior and on consumers’ attitudes towards purchasing durable goods.

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