Was That The Consumer's Last Gasp?
Today the Conference Board released its consumer confidence survey for November which showed a sharp jump in the last month from 40.9 to 56. This is the highest level of the index since July just prior to the debt ceiling debacle and the surge in the Greek crisis. Of course, a recovery from some of the lowest levels of consumer confidence on record should not be surprising after the sharp bounce in the markets in the month of October. As the stock market recovered so did the attitudes of consumers.
What we need to know, however, is the sustainability of the increase in confidence. Is this a merely a bump in confidence due to a surge in the market or is it something more sustainable? One thing that we will note is that the recent surge in confidence has led consumers to tap into savings at an alarming rate. With the rate of personal savings dropping by more than 30% during recent months it is highly suspect that consumers can maintain their current spending binge for long before reality smacks them in face.
Of course, personal consumption is ultimately derived from the ability to spend rather than just better confidence. The decline in the personal savings rate tends to predict declines in personal consumption patterns over time. The recent sharp decline in the personal savings rate does not bode well for continued strength in the year-over-year personal consumption pattern.
While the recent uptick in consumer confidence is encouraging it is most likely fleeting. The return of market turmoil and declines for the month of November will likely impact confidence in the coming months. Furthermore, it is also important to remember that confidence is still at recessionary levels so it is important to keep perspective on the level of the index more than the month to month variations.
Lastly, probably the most critical component overall to a lasting rise in consumer confidence is the ability to find and retain a job. The gap between those finding jobs hard to get versus jobs being plentiful is still near historic spreads. Those find jobs hard to get, while declining in the recent month to 42.1 (back to April levels) is still extremely elevated and remains at recessionary levels. Likewise, those find jobs "plentiful" rose to 5.8 which is normally associated with recessionary troughs - not two plus years post a recession ending.
Consumer confidence is the key to the economy going forward. Without confidence from the consumer to commit to spending at more normalized levels the end demand to businesses will remain weak keeping them on the defensive. However, at current levels of low confidence, low personal savings rates and a tough job market it won't much to send these numbers into a fast retreat - there simply is not much room for error.