Tuesday, October 28, 2008

Blue Christmas


Today the Conference Board released its consumer-confidence survey
(http://www.conference-board.org/economics/ConsumerConfidence.cfm ).

The following paragraphs are from the accompanying press release:

“The Conference Board Consumer Confidence Index™, which had improved moderately in September, fell to an all-time low in October. The Index now stands at 38.0 (1985=100), down from 61.4 in September….

"Says Lynn Franco, Director of The Conference Board Consumer Research Center: "The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers' confidence. The decline in the Index (-23.4 points) is the third largest in the history of the series, and the lowest reading on record. In assessing current conditions, consumers rated the labor market and business conditions much less favorably, suggesting that the fourth quarter is off to a weaker start than the third quarter. Looking ahead, consumers are extremely pessimistic, and a significantly larger proportion than last month foresees business and labor market conditions worsening. Their earnings outlook, as well as inflation outlook, is also more pessimistic, and this news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season."

There are a number of remarkable features of this release, including the single-month drop of over 20 points. Perhaps the most dramatic of all is the perspective gained when you update the chart below with the latest reading of 38.0

Consumer Confidence

(Click on chart to enlarge)

Recessions shaded

You can see that the index has never before fallen below 40, and you can see that recession has accompanied all past readings of 60 or lower. Observers quibble over whether or not month-to-month changes in consumer confidence forecast household expenditures. But there seems no arguing about the historical significance of this indicator. The correlation between its downward trends and recession seems quite clear.

Nonetheless we must wonder…… What is the significance of 38.0, the lowest reading ever? How much lower will the index fall? What is the significance for consumer purchases of everything from travel to autos? How severe will be the unfolding recession?

One thing for sure. It looks like a Blue Christmas for retailers and many more as well.

(The chart was taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2008 Michael B. Lehmann

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