Last Friday a national consumer confidence survey by the University of Michigan showed the best reading in seven years. This survey comes out twice a month, and this reading was the preliminary report for the month of October.
This is a telephone survey of approximately 500 individuals throughout the country. There are 50 questions asked, which participants respond to regarding their own financial situation along with their sense of the economy. Questions are asked about both current conditions and future expectations.
What is noteworthy about the results of this report, is that in recent weeks there have been plenty of negative news stories throughout the world. We have been inundated with news regarding the Ebola outbreak. The situation in the Middle East remains precarious. Finally, the stock market overthe past two weeks has seen its most volatility in three years.
While we are aware of recent negatives, there have also been some positive developments to account for this improvement in consumer confidence. The most significant has been the decline in the price of gasoline. Since a majority of people drive, this is something that we are definitely aware of.
The other positive has been the gradual improvement in the labor markets. While the job situation is still far from healthy, especially in Los Angeles County, we are seeing improvement. Last week’s new jobless claims number was at its lowest in 14 years, indicating that layoffs are diminishing.
The actual number that was reported for consumer confidence last Friday was 86. To put that in perspective, this number has averaged about 90 over the past 50 years, with a low reading in the 50s and a high of just more than 110. In essence consumers are feeling more confident compared to recent times, though on a historical basis confidence is approaching an average reading.
It should also be noted that there are other surveys of consumer confidence besides the University of Michigan one. The Conference Board is another well recognized one. We sometimes see one survey reporting an increase and another one showing a decrease for the same month. However, as with most pieces of economic data it is best to look at a trend of several months, and there has been improvement recently.
There are some who may not give too much weight to a survey. The feeling being that people can say anything, as it is ultimately what they do that counts. However, what is most important for a survey is the direction of change. If the number is increasing, then there is generally a strong indication that the actual sales figures will be improving.
I think we are all aware that there are plenty of negative events going on. The fact that consumers are feeling a little better must imply that these problems may not be all that bad, or there are enough positives going on to offset the bad events.
The fact that consumer confidence held up during this recent market correction would imply that we should not be looking at a major stock market downturn. Of course things can change, and eventually there will be some event that causes consumer confidence to deteriorate. However, at least for the near term, we should expect to see somewhat better news on the economy.
For now with consumer confidence improving this would imply better sales for retailers. With the all-important Christmas selling season approaching, a more confident consumer should help to boost sales. With the consumer accounting for about two-thirds of the economy, expectations will be for a decent fourth quarter of the year.
Allen Wisniewski has been involved in finance for more than two decades. He lives in Culver City with his family.
