NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
INDICATOR: December Conference Board’s Consumer Confidence Index
KEY DATA: Confidence: 52.5 (down 1.8 points); Present Situation: 23.5 (down 1.9 points); Expectations: 71.9 (down 1.4 points)
IN A NUTSHELL: “People are saying they are still worried but acting differently as they have hit the malls pretty hard.”
WHAT IT MEANS: The sluggish recovery is the result of consumers holding tightly to their hard earned dollars. All the reports seem to indicate they have begun to blow the dust out of their wallets and are spending more. Strangely, though, that attitude has yet to translate into rising consumer confidence. The Conference Board’s December reading of household perceptions was down, surprisingly. People are less confident about the current economy and future opportunities. They are still quite worried about where the labor market is going and that is not good news because a smaller percentage of the respondents think their incomes will rise next year. Jobs are still issue number one and as long as the labor market remains less than stellar, workers will be concerned about their job security. An additional reason for the continued uncertainty is the housing market. The S&P/Case-Shiller October numbers came out today and they were disappointing. Prices fell everywhere and eighteen of the twenty large metropolitan areas had a deceleration in their price gains. Indeed, for the first time since January, the twenty-city index was down on a year-over-year basis. Foreclosures continue to pressure the market and that is not going to change anytime soon. With some much of their wealth tied up in housing, home price declines can only hurt perceptions of the world. Stability would be nice but we have to stop falling before we can start rising and I am not sure there are lots of places across the nation where housing price increases are being recorded.
MARKETS AND FED POLICY IMPLICATIONS: The data today were disappointing. Declining housing prices only feed the uncertain beast that is the consumer. But we also have had news that the holiday shopping season was quite good. So, should we listen to what consumers’ say or watch what they do? To me, the proof is in the doing and I am not so certain we should take too much away from the decline in the confidence index. If that is repeated in January, yes, it might be time to redo the forecast. But I have been marking my numbers up recently and for good reason: Most of the other data have been solid! Unfortunately for investors, there is not a whole lot of important data coming out the rest of the week so they will have to make end of the year judgments on these numbers. I suspect traders will probably close up shop and watch and wait until next week.