Can’t help but put ISM and Confidence surveys together: looks a little off
by Rebecca Wilder
Today I digress from my recent Eurozone obsessions to compare the U.S. Consumer Confidence report (released today) to the PMI production surveys, a “soft” comparison of supply and demand. According to the Conference Board today:
The Conference Board Consumer Confidence Index, which had decreased in February, rebounded in March. The Index now stands at 52.5 (1985=100), up from 46.4 in February. The Present Situation Index increased to 26.0 from 21.7. The Expectations Index improved to 70.2 from 62.9 last month.
Consumers’ assessment of current-day conditions was less negative in March. Those claiming conditions are “bad” decreased to 42.8 percent from 45.1 percent, while those claiming business conditions are “good” increased to 8.6 percent from 6.8 percent. Consumers’ assessment of the labor market was also less pessimistic. Those saying jobs are “hard to get” declined to 45.8 percent from 47.3 percent, while those saying jobs are “plentiful” increased to 4.4 percent from 4.0 percent.
This report is nothing to write home about. Consumer confidence remains at excruciatingly low levels.
In a post back in September, I argued that the expectations index is a better indicator of consumer spending. As such, the expectations component remains stronger than the composite, having rebounded to its level at the onset of the recession. However, like the composite index, the expectations index is moving rather laterally since May 2009.
Notice the bigger picture, with the Confidence survey illustrated alongside the ISM manufacturing and non-manufacturing surveys. The story remains to be very one-sided on the production side, which is more likely to drop back to meet weak consumer demand UNLESS THE JOBS MARKET IMPROVES…FOR REAL. See my previous post on the temporary effects of the Census hirings.
The underlying demand for goods and services, as determined by the 70% of the economy that is the Consumer, is weak, especially at this stage of the recovery (having already posted a positive quarter of economic growth). (By the way, if you want National Income data, the BEA offers an exceedingly easy way to download it here.)
These numbers challenge even the most optimistic of us all (that used to be yours truly).
crossposted with News N Economics
Have you looked back at other big inventory corrections to see if something similar happened? I’d expect any recent prior episode to show a smaller divergency, since we have had some recession in which consumer spending was pretty resilient. Anyhow, this seems just the sort of thing you’d expect from an inventory-only rebound. Note how services, which aren’t big with the inventory accumulation thing in a direct way, are lagging factories in the ISM data.
Another great post. Thanks!
You bring up a good point – something I thought of AFTER I put up the chart online. The short answer is that the differential is larger in this cycle than any cycle since 1978 (see attached chart). The only cycle that even comes close, interestingly, is the 1991 recession (interesting becuse it is also associated with a real estate correction, non-res though). The inventory cycle this time around is monstrous compared to that recession (http://research.stlouisfed.org/fred2/series/CBIA?cid=106). From that view, the differential should be much wider, implying that the underlying demand is likely very, very low, better put: the inventory cycle is small by comparison (if one can actually infer that from the surveys).
Thank you, for reading!
Historically the expectations index is a far superior indicator of the stock market PE thant the current conditions index.
“These numbers challenge even the most optimistic of us all (that used to be yours truly).”
4.4% say jobs are plentiful and that is up 4 tenths of 1%? I would give such an increase a AAA rating or in true Bachelor and Bachelorette language “absolutely, amazingly, awesome.” We think they are building up the inventory and soon they will reach a level which will be a drain on revenue and the cycle will start all over again , , , layoffs to balance the increased costs. Now this is from the ground floor of the shops. Cash for clunkers made many dream of 17 million per year care demand when in reality . . . maybe 11-12 million.