Search This Blog

Wednesday, February 29, 2012

Consumer Confidence: Up ... But Big Questions Continue

On February 28, the Conference Board reported that its Consumer Confidence Index, which had declined in January, increased in February from 61.5 a month earlier to 70.8.

Consumers were more optimistic on their assessments of both current conditions and their short-term outlook. That's certainly welcome. But all of this needs to be put in perspective.

For example, before the deep recession and poor recovery took over, the Consumer Confidence Index was far higher. Five years ago, in February 2007, it came in at 111.2. Over the three years prior to the most recent recession, the index range ran between 85.2 and 111.9. For good measure, over the past three-and-a-half decades, the high was 144.7 in January 2000.

So, while consumer confidence is improved compared to where it's been over the past year - falling short of the 72.0 mark hit last February, which was the high mark for the past four years - we're still nowhere near where we should be, especially more than two-and-a-half years into a recovery.

In addition, while improved, consumers remain far from optimistic in terms of their outlooks for both business conditions and the labor market.

On business conditions, the Conference Board reported: "The proportion of consumers expecting business conditions to improve over the next six months increased to 18.7 percent from 16.7 percent, while those anticipating business conditions will worsen decreased to 11.8 percent from 14.6 percent." And on labor markets: "Those anticipating more jobs in the months ahead increased to 18.7 percent from 16.4 percent, while those anticipating fewer jobs declined to 16.9 percent from 19.1 percent.

Again, while any positive moves are appreciated, these levels hardly reflect a robust confidence in the economy. Indeed, it's quite the contrary.

Finally, it must be noted that this measure of consumer confidence might already be outdated. The cutoff date for these results was February 15. With the recent rise on gas prices, and expectations for rising costs at the pump in coming weeks and heading into the summer, especially with uncertainty swirling around Iran, it would not be surprising to see consumer confidence take a hit as a result.

In the end, of course, consumer confidence reflects the state of the economy and job creation, along with key costs like energy. Consumer uncertainty, along with business and investor uncertainty, need to be reduced via sound public policies, which mean a shift to smaller government, namely, substantive, permanent tax and regulatory relief, reduced federal spending, sound monetary policy focused on price stability, and stronger leadership on free trade in the global arena. That shift would be good for entrepreneurship, business, investment, growth, jobs and therefore, consumer confidence.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

No comments: