The much anticipated latest reading on consumer confidence, which was issued shortly after today’s market opening, was slightly lower than economists were expecting. Indeed, the Consumer Confidence Index, a monthly survey based on a probability design random sample conducted by The Conference Board, fell modestly in February from the downwardly revised January figure.
Specifically, the Consumer Confidence Index fell from 79.4 in January to 78.1 in the current month—economists had expected the index to come in around 80.0. This latest reading is a bit disappointing, as the consumer accounts for the largest portion of the nation’s economic output. The index is closely watched by economists because it provides a monthly gauge of how Americans are feeling about their jobs, incomes and other essential issues.
However, when broken down further, the consumer confidence report did give some hope that the economy will strengthen in 2014, even if the performance in the current quarter, which will likely be hurt by weather-related issues, is weaker than the final six months of 2013. Specifically, the Present Situation Index (which climbed from 77.3 to 81.7 in the latest month) is now at its highest level in almost six years. This suggests that consumers believe the economy has improved, but they do not foresee it gaining considerable momentum in the months ahead. Also in the latest report, those claiming business conditions are “good” rose to 21.5% from 20.8% in January, while those claiming business conditions are “bad” fell to 22.6% from 23.4%.
According to Lynn Franco, Director of The Conference Board Consumer Research Group, “Consumer confidence declined moderately in February on concerns over the short-term outlook for business conditions, jobs, and earnings,” but she also noted that “while expectations have fluctuated over recent months, current conditions have continued to trend upward.” All in all, consumers seem to be feeling a bit better about their present situations, as an appraisal of current conditions improved for the fourth consecutive month.
Nevertheless, we think investors should closely monitor the consumer confidence data for both March and April, as it will provide a better gauge as to whether the slight slippage in the consumer confidence the last few months was a result of a slowdown in jobs creation due to the nasty winter weather that has blanketed much of the country for the first two months of the new year. The health of the job market, which many pundits think will improve as the year progresses, tends to have a big impact on the psyche of the consumer. Our sense is that with inflationary pressures still very much in check, we would not be surprised if consumer confidence strengthens over the course of 2014, especially when the impact of the severe winter weather conditions—which also has caused heating costs to jump in recent months—are clearly in the rearview mirror. Too, we think this latest data on the consumer, which is heavily scrutinized by the Federal Reserve during its monetary policy discussions, will not deter the central bank from continuing its bond-buying tapering.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.