When the stock market closed on Friday February 1, 2013, the Dow Jones (DJIA) came in above 14,000 for the first time since 2007. The Standard & Poors (S & P) 500 surpassed the "psychologically key" 1500 mark. As stocks reached these lofty heights, the blogger at Sober Look wanted to know what's wrong with this picture?
Here's a closer, longer look from Tim Iacono's Consumer Confidence Plunges In January.
And now, let's quote the The Conference Board's January report.
The Conference Board Consumer Confidence Index®, which had declined in December, fell further in January. The Index now stands at 58.6 (1985=100), down from 66.7 in December. The Expectations Index declined to 59.5 from 68.1. The Present Situation Index decreased to 57.3 from 64.6 last month...
Consumers’ appraisal of current conditions deteriorated in January. Those claiming business conditions are “good” declined to 16.7 percent from 17.2 percent, while those stating business conditions are “bad” increased to 27.4 percent from 26.3 percent. Consumers’ assessment of the labor market has also grown more negative. Those saying jobs are “plentiful” declined to 8.6 percent from 10.8 percent, while those claiming jobs are “hard to get” increased to 37.7 percent from 36.1 percent.
Remember those confidence numbers with respect to jobs.
Consumers’ optimism about the short-term outlook continued to deteriorate in January. Those expecting business conditions to improve over the next six months declined to 15.4 percent from 18.1 percent. However, those expecting business conditions to worsen declined slightly to 20.6 percent from 21.1 percent.
In the past, the correlation between the Conference Board's confidence index and the stock market has been strong, especially during the bubble and crisis years, as this 2010 analysis by Doug Short demonstrates.
Now let's overlay the Conference Board's Consumer Confidence Index, likewise adjusted to its regression trendline. As we can see, this index generally echoes the market, especially so during the Bubble and Crisis years.
However, there are other periods with little correlation, for example, 1984-1986 and 1991-1995.
It is safe to say that all the years since 1995 have been "crisis or bubble" years. Apparently, "consumer" confidence exceeded gains in the stock market during the peak years of the Housing Bubble (2004-2007). Americans were wealthy! Otherwise, the correlation is strong since 1995.
Did somebody forget to tell "consumers" that they should be more confident now that the stock market is on the verge of breaking new records? If you look again at Tim Iacono's chart (2nd above), you can see that the stock market has (with some breaks) gone up and up since 2009, but confidence has remained mostly flat.
What's going on? Doug Short finds that confidence is more strongly correlated with the unemployment rate than anything else.
As we see, the two confidence measures are more closely correlated with the level of unemployment than the behavior of the market. If unemployment remains high, consumer confidence will likely remain low.
The "official" jobless rate is 7.9% according to the latest tall tale told by the Bureau of Labor Statistics. On the other hand, Gallup's January "underemployment" rate is an astonishing 17.4%. Remember we are now in the fifth year after the the U.S. reached record levels of household debt, the Housing Bubble burst, and the financial sector melted down.
But just because YOU are screwed, now and forever, does not mean it is not time to celebrate.
Break out the Bubbly!
Happy Days Are Here Again!