Consumer sentiment and consumer confidence are two indexes showing consumers’ perceptions of current business, income and employment conditions, as well as their expectations for the future’s economy. They are both highly (inversely) correlated with the unemployment rate. Based on the data from the past three decades, the Consumer Confidence Index and the Consumer Sentiment Index increase when the unemployment rate declines, and vice versa.
The unemployment rate has been steadily declining since late 2009, from a peak of 10% in October 2009 to 5.4% in April; correspondingly, both consumer indexes increased from historic lows to more normal levels in this period. After consistent declines in the unemployment rate and notable gains in consumer attitudes through 2014, recent months have experienced a leveling off. The unemployment rate has moved up and down modestly in the last six months, and consumer attitudes have oscillated similarly.
Figure 2 presents the Consumer Confidence Index from the Conference Board and its subcomponents, the Present Situation Index and the Expectations Index. The subcomponents show that consumers have stronger reactions to current conditions than to expectations about the future, as indicated by the higher volatility of the present situation index. This reflects an apparent bias toward the status quo in expectations about future business conditions and the availability of jobs. Consistently higher percentages of respondents report expectations about the future to be “the same” rather than better or worse, in comparison to the percentages characterizing current conditions as “normal” rather than good or bad. This higher tendency toward the middle in expectations dampens the volatility of the index relative to the present conditions index.
In contrast to the slow, steady recovery in consumer confidence, plans to buy a home snapped back sharply after declining during the recession. The percentage of respondents planning to buy a home within 6 months more than doubled in the second half of 2010 and remains at elevated levels four years later.