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Expect Weakened Confidence in the Winter Months

By: Tim Rood
Posted Tue, Nov 27 2012, 10:00 AM

Leading up to the November election, expectations for the future likely reflected optimism, or at least wishful thinking, but with widespread media coverage of the impending fiscal cliff debate and the status quo election results, consumers are likely to be left feeling economically fatigued and anxious. This shift in sentiment is surely going to manifest itself in weaker Consumer Confidence Index numbers.

On Tuesday, November 27, 2012, The Conference Board will release the Consumer Confidence Index (CCI) for November. This lagging indicator would generally be considered an effective proxy for consumer demand in the months to come. However, during unpredictable and unstable times these sorts of sentiment-based studies and indexes have not correlated tightly to consumer demand.

While 40 percent of the index is comprised of consumers’ opinions on current conditions, the remaining 60 percent reflects expectations for future conditions. The CCI remains below its historical average of 93 and has been languishing in a range between 25 to 80 for the past four years. Decreasing or persistently low trends in the CCI suggest that consumers have a negative outlook for their personal finances and their ability to secure and retain good jobs.

Leading up to the November election the positive trend in the CCI reflected optimism, but consumers have now been inundated with fiscal cliff debate coverage and are likely feeling more anxious. The Michigan Consumer Sentiment Index, which is usually tightly correlated with the CCI, came in lower than projections of 84.5 at 82.7. And Fannie Mae’s recently released Economic and Housing Outlook for November also predicted declines in consumer and business confidence in the winter months.

Considering that the United States’ economy is dominated by consumer spending, 70 percent +/- of the gross domestic product (GDP), it's hard to ignore studies that attempt to capture consumer sentiments. And given the stagnant retail sales numbers and mixed results for Black Friday, I expect the CCI numbers to be flat or decline over the next few months.

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