Inside the Confidence Numbers

Consumer confidence and sentiment are extremely positive.

Let’s take a look behind the headline numbers. If you’ve been following these reports regularly, you’ve seen the steady increases in Consumer Sentiment, as reported by the University of Michigan, and Consumer Confidence, as reported by The Conference Board.

While both numbers have increased, the Consumer Confidence numbers have been the strongest. We’ll look at the details.

First, here are the latest headline numbers. Last week, confidence was reported at 125.9. That is the highest reading since December 2000. (It was in the 140s before that.) The long-term average is 93.9.

When asked specific questions, consumers reveal that the jobs market is a major reason for their confidence. The “jobs are plentiful” reading is the highest since June 2001 and close to all-time highs. Consumers also are optimistic about future income increases and believe inflation will remain low.

However, high levels of confidence aren’t universal, and that’s what I want to look at next.

The higher a person’s income, the more likely the person is to be confident. Those with incomes above $50,000 have a confidence reading of 150.7. Those with incomes between $35,000 and $50,000 have a confidence reading of 113.2.

People with lower incomes have a confidence reading of only 62.8. Just as interesting are the trends. The higher income group had its confidence rise recently, while the lower income group had its confidence tumble.

You might think these differences make sense, but, historically, that hasn’t been the case. In the past, there has been a much tighter grouping of the confidence levels among the different income groups, and they tend to rise and fall together. In fact, the gap between the confidence of the highest and lowest income groups recently spiked to its highest level ever by a wide margin. The higher income group began to separate from the others in 2014 and has been more volatile than the others since then.

There also has been a dramatic change in confidence by age group. Traditionally, the over-55 age group is the least confident and the under-35 group is the most confident, with the 35-54 age group being in between.

That has been changing recently. Confidence among the over-55 group lagged the others by historic margins from 2013-2016. Since late 2016, though, confidence among that group has been surging. Confidence among the 35-54 group also has been climbing. Yet, in recent months, confidence among those under 35 was flat, and then dropped in the last month. Now, the 35-54 group has a higher confidence level than those under 35, and the over-55 group is close to the confidence level of the under-35 group.

We’ve seen similar trends in the Consumer Sentiment numbers from the University of Michigan. That survey reports numbers by political affiliation and has found sentiment becoming less optimistic among Democrats and rising among Republicans.

These details can help interpret the economic data.

Older people tend to spend less than younger people, especially in a number of retail categories. That can explain why retail spending growth hasn’t increased with the confidence and sentiment numbers the way it has in the past. Older people are boosting the confidence and sentiment numbers, but more optimism doesn’t make them spend a lot more.

Likewise, those with higher income tend to save more and spend less than those with lower incomes. Their spending doesn’t fluctuate as much with their current level of optimism.

This is why while retail spending is likely to keep increasing, it isn’t likely to increase in line with the sentiment and confidence readings. Instead, we’re likely to have the low, steady growth of the last few years.

The Data

Growth in the services sector of the economy remains solid.

The PMI Services Index held steady at 55.3. Any reading above 50 indicates growth.

The ISM Non-Manufacturing Index rose to 60.1 from 59.8. This is the highest reading since 2004. One reason this index is stronger than the PMI counterpart is that the ISM survey includes construction and mining, which the PMI doesn’t. Those two sectors have been strong lately.

Consumer Credit had a sizable increase two months in a row. Unlike many past months, the increases weren’t concentrated in student and auto loans. Revolving credit, such as credit card balances, increased significantly each month. That usually indicates retail sales are increasing.

Factory Orders indicate that the recovery in manufacturing continues. Orders increased 1.4% for the month, following a 1.2% increase last month. Even better, core capital goods increased 1.7% and last month’s reading was revised higher to a 1.4% increase.

The monthly Employment Situation reports have been skewed a lot by the hurricanes in August and September. Last month’s reported decline of 33,000 net new jobs was revised to an increase of 18,000 jobs. Other details of last month’s report had similar revisions.

In the latest report, 261,000 new jobs were created and the unemployment rate declined to 4.1%. Average hourly earnings were unchanged, following a 0.5% increase last month. That makes the 12-month earnings increase 2.4%. The average workweek was unchanged at 34.4 hours.

The JOLTS (Job Openings and Labor Turnover Survey) report also continues to show a healthy labor market. Job openings increased a bit while hirings and separations were stable. There continue to be a number of unfilled job openings because employers say they can’t find qualified workers for those positions.

New unemployment claims increased 10,000 to 239,000. However, the four-week average declined to the lowest level since March 31, 1973. The claims numbers still are a bit inaccurate because of continuing disruptions in processing in the Virgin Islands and Puerto Rico.

The Markets

The S&P 500 rose 0.63% for the week ended with Wednesday’s close. The Dow Jones Industrial Average added 0.54%. The Russell 2000 declined 0.72%. The All-Country World Index returned 0.60%. Emerging market equities increased 0.56%.

Long-term treasuries appreciated 1.29% for the week. Investment-grade bonds lost 0.09%. Treasury Inflation-Protected Securities (TIPS) rose 0.47%. High-yield bonds fell 0.76%.

The U.S. dollar gained 0.12%.

Energy-based commodities jumped 2.52% for the week. Broader-based commodities added 1.34%. Gold rose 0.49%.

Bob’s News & Updates

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