How important is it that U.S. consumers began feeling slightly better in November after reporting record levels of pessimism in October? Not much, it seems. Economists say the bounce in consumer confidence merely reflects lower gas prices, and even with a major gain in six-month expectations component, the headline index is at its second worst level ever.
The headline improved to 44.9 in November, up from a 38.0 reading in October. Economists had expected the survey to remain at 38.0. The jump was due solely to the expectations component, which leaped 11 points to 46.7, while the present situation component deteriorated slightly to 42.2, down from 43.5 in October.
Senior U.S. economist Paul Ashworth from Capital Economics said the bounce in confidence survey can be attributed to the "unprecedented collapse" in gasoline prices, but he said the index is nothing to get excited about.
"Confidence is still close to rock bottom as consumers struggle with the recession, soaring unemployment, the unparalleled destruction of their wealth - both housing and financial and the freeze in credit markets," he said.
Lynn Franco, director of the Conference Board Consumer Research Center, said "despite the improvement in the Expectations Index this month, consumers remain extremely pessimistic and the possibility that economic growth will improve in the first half of 2009 remains highly unlikely."
Explaining the advance in the expectations component, chief U.S. economist Ian Shepherdson from HFE added: "Expectations are very sensitive to changes in both stock and gasoline prices so, in October, the big story was the massive plunge in stocks after the Lehman failure. People are still very unhappy about this but the shock is starting to fade, allowing the plunge in gas prices to have a visible effect."
Other positive news in the report came from the prices index, the short-term outlook and the labour outlook.
One-year inflation expectations fell nearly a full percentage point in the month, falling to 5.9% from the previous month's 6.8% level. Those levels are startlingly high, but significantly lower than in June and July, when inflation index peaked at 7.7%.
In addition, consumers' short-term outlook was less pessimistic. Those anticipating business conditions to worsen over the next six months declined to 28.1% from 36.5%, while those expecting conditions to improve rose to 11.4% from 9.6%.
Finally, the outlook for the labour market was also less negative than last month. The percent of consumers anticipating fewer jobs in the months ahead declined to 33.3% from 41.5%, while those expecting more jobs increased to 9.2% from 7.3%. The proportion of consumers anticipating an increase in their incomes increased to 13.3% from 11.1%.
TD Securities economist Ian Pollick said some aspects of the report are encouraging, but he said the absolute index of the report is historically low and consistent with tepid economic growth. He also said the outlook on asset purchases, such as cars, houses and appliances, remain under pressure.
By Patrick McGee and edited by Nancy Girgis
©CEP News Ltd. 2008