Consumer Confidence: Cautionary Spending Increases But Challenges Ahead

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During the recent holiday retail season, the topic of consumer spending received added attention. While consumer spending continues to make up a large proportion of the U.S. economy, the uneven road to recovery from the recession has spotted consumer spending with uncertainties.

We take a closer look at six indicators of consumer spending to gain a better understanding of what has happened in the last two years and what may occur in 2013. The first two indicators we survey are spending numbers from the recent past, while the next four we look at are consumer confidence numbers that indicate consumers’ future plans and attitudes concerning personal finance and the economy.

We find that while consumer confidence has been improving markedly over the past two years, the most serious blows to consumer confidence have come from Washington – during the debt ceiling fight of August 2011 and the fiscal cliff debate of December 2012. This is an unnerving sign as the government prepares for another round of infighting on the debt ceiling, potential default, and the sequester in late February and early March.

 

Table of Contents

 

1. Gallup U.S. Daily Spending

2. Retail Sales – U.S. Census Bureau

3. Reuters/University of Michigan Surveys of Consumers

4. Rasmussen Consumer Index

5. Gallup U.S. Economic Confidence Index

6. Conference Board Consumer Confidence Index

 

1. Gallup U.S Daily Spending

The Gallup U.S. Daily Spending poll measures the average dollar amount that Americans claim to have spent or charged in the previous day. The numbers do not include home purchases, motor vehicle purchases or normal household bills. The poll is taken daily by surveying approximately 1500 American adults through telephone interviews and results are reported in both 3-day and 14-day rolling averages. Here is the Gallup polling data from this January and December 2012, compared with the January and December months of the previous year:

Date 14-day rolling average in $ 3-day rolling average in $ Date 14-day rolling average in $ 3-day rolling average in $
12/1/12 82 84 12/1/11 73 55
12/2/12 80 80 12/2/11 75 58
12/3/12 80 82 12/3/11 75 70
12/4/12 82 92 12/4/11 75 83
12/5/12 83 88 12/5/11 76 78
12/6/12 86 95 12/6/11 77 79
12/7/12 90 87 12/7/11 79 80
12/8/12 88 90 12/8/11 78 77
12/9/12 89 86 12/9/11 78 70
12/10/12 89 81 12/10/11 74 66
12/11/12 83 78 12/11/11 74 82
12/12/12 83 65 12/12/11 72 77
12/13/12 82 70 12/13/11 74 82
12/14/12 81 68 12/14/11 75 70
12/15/12 81 76 12/16/11 78 83
12/16/12 83 82 12/17/11 79 81
12/17/12 83 94 12/18/11 79 86
12/18/12 81 93 12/19/11 78 80
12/19/12 83 87 12/20/11 78 77
12/21/12 82 89 12/21/11 78 78
12/22/12 84 100 12/22/11 78 84
12/23/12 89 119 12/23/11 81 91
12/26/12 85 98 12/26/11 78 70
12/27/12 85 83 12/27/11 77 60
12/28/12 85 59 12/28/11 75 53
12/29/12 85 69 12/29/11 78 76
12/30/12 84 71 1/2/12 75 74
1/3/13 86 73 1/3/12 74 66
1/4/13 85 75 1/4/12 73 60
1/5/13 83 80 1/5/12 71 62
1/6/13 82 87 1/6/12 70 70
1/7/13 84 95 1/7/12 71 70
1/8/13 84 103 1/8/12 72 81
1/9/13 83 94 1/9/12 70 78
1/10/13 83 103 1/10/12 68 68
1/11/13 79 87 1/11/12 65 60
1/12/13 82 94 1/12/12 68 60
1/13/13 83 74 1/13/12 67 57
1/14/13 82 83 1/14/12 66 58 

As Gallup itself noted, consumer spending in December was high – the highest, in fact, in 4 years. American adults in December spent an average of $83 a day, up from an average of $76 in December 2011 and $75 in December 2010. This increase is in line with the upwards trend in year over year numbers since the recession, as Gallup also points out.

The January Gallup polling numbers are intriguing as well. While spending numbers tend to decrease in January as the holiday season is over, consumer spending January 2013 has not dropped off as sharply as in January 2012. The 14-day rolling average of the period Jan. 3rd to Jan. 14th was $83 in January 2013, unchanged from the December 2012 monthly average of $83. The 14-day rolling average of the period Jan. 3rd to Jan. 14th was $70 in January 2012, down $6 from the December 2011 monthly average of $76.

The period of Jan. 3rd to Jan 14th was used because Gallup did not poll on Jan. 2nd of 2013 or on Jan. 1st of either year.

2. Retail Sales – U.S. Census Bureau

The U.S. Commerce Department reports monthly data on retail and food services sales. Here are the advance monthly sales for retail and food services from 2011 and 2012, as reported in monthly percent change, seasonally adjusted:

Month, 2012 Seasonally Adjusted Sales, Monthly % Change, in % Month, 2011 Seasonally Adjusted Sales, Monthly % Change, in %
Jan 0.9 Jan 0.8
Feb 1 Feb 0.9
Mar 0.4 Mar 0.8
Apr -0.5 Apr 0.4
May -0.1 May 0
Jun -0.7 Jun 0.9
Jul 0.7 Jul 0.3
Aug 1 Aug 0.2
Sep 1.2 Sep 0.7
Oct -0.2 Oct 1.3
Nov 0.4 Nov 0.2
Dec 0.5 Dec -0.1

The sales numbers are mixed, with 2012 seeing four months of negative growth compared to one month of negative growth in 2011. The last six months of 2012, however, showed strong growth and December sales beat analyst expectations.

3. Reuters/University of Michigan Surveys of Consumers

 The Reuters/University of Michigan Surveys of Consumers is one of the most closely watched and well-respected indices of consumer confidence.

The Index of Consumer Sentiment is widely cited by industry professionals and the Index of Consumer Expectations, a subset measure of consumer beliefs on personal financial situations and well as both the short and long term health of the economy, is an official part of the Leading Indicator Composite Index, published by the U.S. Department of Commerce. The index has been normalized to have a value of 100 in December of 1964.

Here are the monthly consumer sentiment numbers from 2011 and 2012:

Month, 2012 Value Month, 2011 Value
Jan 75 Jan 74.2
Feb 75.3 Feb 77.5
Mar 76.2 Mar 67.5
Apr 76.4 Apr 69.8
May 79.3 May 74.3
Jun 73.2 Jun 71.5
Jul 72.3 Jul 63.7
Aug 74.3 Aug 55.8
Sep 78.3 Sep 59.5
Oct 82.6 Oct 60.8
Nov 82.7 Nov 63.7
Dec 72.9 Dec 69.9
Avg. Value 76.5 Avg. Value 67.4

There’s a strong upwards trend in the consumer sentiment values. Values in 2012 were higher in 11 of the 12 months of the year where monthly values of 2012 are compared to same-month values of 2011. The average 2012 monthly value of 76.5 is almost 10 points higher than the average 2011 monthly value of 67.4.

This upwards trend, though, is punctuated by a few substantive drops in the index. In August of 2011, the value dropped to 55.8, the lowest value reported by the index since November 2008. This drop was partially attributed to the debt ceiling battle, as never before in the survey’s history had consumers rated economic policies so unfavorably and never before had consumers mentioned such negative thoughts on the government’s role in the economy.

After confidence fell in August to 55.8, the index did not recover to the June 2011 level of 71.5 until January of 2012.

Another noticeable drop in the index was December 2012. Concerns about the government’s ability to handle the fiscal cliff likely played a major role in dropping the index to 72.9, a sharp drop from the November 2012 value of 82.7. The 72.9 value was the lowest reported value since July 2012. Particularly striking about the drop was that the November 2012 value was the highest since September 2007, before the recession.

4. Rasmussen Consumer Index

The Rasmussen Consumer Index quantifies consumer confidence through daily polling. The index has a standard value of 100. Here is the daily polling data from January 2013:

Date Consumer Index Reading
1/1/13 No polling
1/2/13 No polling
1/3/13 98.3
1/4/13 100.1
1/5/13 99.3
1/6/13 98.1
1/7/13 95.8
1/8/13 92.4
1/9/13 94.5
1/10/13 96.1
1/11/13 98.2
1/12/13 96.7
1/13/13 92.9
1/14/13 95.2
1/15/13 96.4
Avg. Value 96.5

Here is the average monthly data from 2012:

Month, 2012 Consumer Index Reading
Jan 85.4
Feb 87.9
Mar 90.8
Apr 88.6
May 91.5
Jun 84.8
Jul 84.7
Aug 83.0
Sep 86.8
Oct 90.5
Nov 91.4
Dec 95.8

The Rasmussen Consumer Index demonstrates a noticeable increase in reported consumer confidence in the closing months of 2012. Dec 2012 closed with a value of 95.8, the highest value of the year and over 10 points higher than the opening value in January 2012 of 85.4.

The January daily numbers have been consistently high as well. From the period Jan 3rd to Jan. 14th of 2013, the average value has been 96.5. The lowest value of the period has been 92.4 and the highest daily value has been 100.1.

5. Gallup U.S. Economic Confidence Index

The Gallup economic consumer index is conducted by polling telephone respondents on the twin questions of rating the economic conditions in the country today and forecasting whether conditions in the country as a whole are getting better or worse. The margin of error is +/- 2 percentage points. 0 is completely neutral with a theoretical maximum of 100 and a theoretical minimum of -100. Here is the index data from 2011 and 2012:

Week, 2012 Value Week, 2011 Value
01/2-8/2012 -27 01/3-9/2011 -21
01/9-15/2012 -29 01/10-16/2011 -19
01/16-22/2012 -25 01/17-23/2011 -23
01/23-29/2012 -27 01/24-30/2011 -20
01/30-02/5/2012 -25 01/30-02/5/2011 -20
02/6-12/2012 -20 02/7-13/2011 -18
02/13-19/2012 -23 02/14-20/2011 -26
02/20-26/2012 -22 02/21-27/2011 -30
02/27-03/4/2012 -25 02/28-03/6/2011 -29
03/5-11/2012 -18 03/7-13/2011 -30
03/12-18/2012 -21 03/14-20/2011 -31
03/19-25/2012 -17 03/21-27/2011 -33
03/26-04/1/2012 -20 03/28-04/3/2011 -28
04/2-8/2012 -23 04/4-10/2011 -33
04/9-15/2012 -19 04/11-17/2011 -36
04/16-22/2012 -19 04/18-24/2011 -39
04/23-29/2012 -21 04/25-05/1/2011 -35
04/30-05/6/2012 -18 05/2-8/2011 -25
05/7-13/2012 -18 05/9-15/2011 -25
05/14-20/2012 -16 05/16-22/2011 -25
05/21-27/2012 -16 05/23-29/2011 -26
05/28-06/3/2012 -18 05/30-06/5/2011 -32
06/4-10/2012 -20 06/6-12/2011 -35
06/11-17/2012 -24 06/13-19/2011 -33
06/18-24/2012 -26 06/20-26/2011 -33
06/25-07/1/2012 -23 06/27-07/3/2011 -34
07/2-8/2012 -23 07/4-10/2011 -34
07/9-15/2012 -27 07/11-17/2011 -41
07/16-22/2012 -25 07/18-24/2011 -43
07/23-29/2012 -29 07/25-31/2011 -51
07/30-08/5/2012 -26 08/1-7/2011 -53
08/6-12/2012 -27 08/8-14/2011 -53
08/13-19/2012 -28 08/15-21/2011 -53
08/20-26/2012 -27 08/22-27/2011 -54
08/27-09/2/2012 -29 08/29-09/4/2011 -48
09/3-9/2012 -18 09/5-11/2011 -51
09/10-16/2012 -19 09/12-18/2011 -47
09/17-23/2012 -18 09/19-25/2011 -52
09/24-30/2012 -21 09/26-10/2/2011 -50
10/1-7/2012 -19 10/3-9/2011 -49
10/8-14/2012 -17 10/10-16/2011 -52
10/15-21/2012 -19 10/17-23/2011 -46
10/22-28/2012 -14 10/24-30/2011 -44
10/29-11/4/2012 -10 10/31-11/6/2011 -47
11/5-11/2012 -11 11/7-13/2011 -43
11/12-18/2012 -15 11/14-20/2011 -45
11/19-25/2012 -15 11/21-27/2011 -44
11/26-12/2/2012 -12 11/28-12/4/2011 -43
12/3-9/2012 -16 12/5-11/2011 -39
12/10-16/2012 -15 12/12-18/2011 -36
12/17-23/2012 -19 12/19-25/2011 -37
12/24-30/2012 -22 12/26/2011-01/1/2012 -34
Avg. Value -21 Avg. Value -37

The most negative values of the past two years are found in August 2011, which corresponds to the debt ceiling fight in Washington. The last full week of August 2011 was the worst reading of the index of the past two years, with a value of -54, substantially lower than the 2011 average value of -37.

The average weekly value of -21 in 2012 is a marked improvement over the average weekly value of -37 in 2011. The average weekly value of -20 over the latter 26 weeks of 2012 was a slight improvement over the average weekly value of -22 over the first half of 2012.

6. Conference Board Consumer Confidence Index 

The Conference Board’s Consumer Confidence Index, a measure of the American consumer’s view of the health of the U.S. economy, is a monthly index that calculates a value based on consumer responses to questions about current and future business, employment, and personal financial situations. Here is the index data from 2011 and 2012:

Month, 2012 Value Month, 2011 Value
  Jan 61.5   Jan 64.8
  Feb 71.6   Feb 72
  March 69.5   March 63.8
  April 68.7   April 65.4
  May 64.4   May 61.7
  June 62.7   June 57.6
  July 65.4   July 59.2
  Aug 61.3   Aug 44.5
  Sept 70.3   Sept 46.4
  Oct 73.1   Oct 40.9
  Nov 71.5   Nov 56
  Dec 65.1   Dec 64.8
Avg. Value 67.1 Avg. Value 58.1

The index fell almost 25% in August 2011 down to 44.5. The index continued to fall, bottoming out at 40.9 in October 2011.

The highest value of the past two years was reported in October 2012. The average monthly value of 67.1 in 2012 was noticeably higher than the average monthly value of 58.1 in 2011.

 

Conclusions

Virtually all the economic indicators surveyed point to a slow and general improvement in consumer spending and consumer confidence. Many indicators of consumer spending and consumer confidence reached their highest numbers since the recession in the later months of 2012.

This appears to be quite positive for consumers as well as the economy as a whole.

One caution, however, is that confidence is easier to lose than recover. Steep drops have plagued the upswing in consumer confidence. The most noticeable decline in confidence was around August 2011, when the debt ceiling issue in Washington shook consumer confidence in the efficacy of public and economic policies. There were similar signs of such decline in confidence in December of 2012, as well, when concerns about the fiscal cliff shook consumer confidence – although the Gallup spending poll recorded that Americans spent more in December 2012 than during any month since the recession.

With similar issues looming in Washington surrounding another debt ceiling, possible government shutdown and the sequester, economists will be closely tracking consumer attitudes to see exactly how much the negative talk in Washington will damage consumer confidence. In sum, the current economic momentum is encouraging but will likely be reversed – although to what extent it is impossible to tell – as the threat of government gridlock shakes consumer confidence.

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