The Conference Board’s Consumer Confidence Index looks to make a rebound this month on the wings of signs that the turmoil that roiled Japan, the Middle East and North Africa in March is finally beginning to calm.
The Index, which fell 8.6 percentage points to 63.4 in March, after having hit a three-year high of 72 in February, seems primed for an April resurgence, analysts surveyed by Bloomberg said.
Chris Christopher, senior principal economist at IHS Global Insight, said a combination of natural disasters striking Japan in March, coupled with growing instability throughout the Middle East and North Africa, prompted an “over- reaction” by consumers.
Christopher added that there aren’t yet dependable metrics for gauging the fallout of such global occurrences on U.S. consumer psyche. “We certainly noticed a similar phenomenon during the oil spill in the gulf,” he said.
Jennifer Lee, a senior economist for BMO Capital Markets, agreed that such unanticipated global shocks can have untold effects on American consumers. “Fewer headlines from overseas” in April will have a “calming effect” on consumer confidence, she predicted.
While analysts surveyed by Bloomberg forecast a rebound of about 1 to 2 points, consumer confidence, which has consistently outpaced analysts’ expectations for the past several months, will probably witness an even stronger resurgence—in the 3 to 5 point range—if the fundamentals of the economy remain sound for the remainder of the month.
Christopher, whose company was by far the most bullish in their estimate of this month’s Conference Board figure, predicting a bounce-back of 4.6 points, said “The stock market doing well, the unemployment rate falling and the alleviation of consumer paranoia about the Middle East and North Africa all point to strengthening fundamentals.”
University of Michigan Survey
In perhaps the most positive omen for the Index thus far, the Thomson Reuters/University of Michigan Consumer Sentiment Survey—which has tended to be more conservative than the Conference Board in gauging consumer sentiment—exhibited a small rebound in April, rising 2.1 percentage points to 69.6 after falling to 67.5 in March, the lowest measure since November 2009.
“There is a ‘meaningful’ correlation between the numbers from the University of Michigan and the Conference Board,” said Hugh Johnson, chairman and chief investment officer of Hugh Johnson Advisors, who forecasts an almost 3 point bounce-back in the Conference Board’s index.
What is more, the University of Michigan’s survey also noted a 9.4% decline in the number of respondents who said they were concerned about inflation in the long-run—inflation over the next 5 years, as defined by the University of Michigan.
This is sure to be welcomed news for Fed Chairman Ben S. Bernanke and his inflation dove colleagues, Fed Vice Chair Janet Yellen and William C. Dudley of the New York Fed, who have all been desperately trying to convince Americans that recent spikes in food and oil prices are merely transitory.
Other Welcomed Signs
Consumer spending, arguably one of the most telling measures of root consumer attitudes, also continues an upward climb, rising 0.4% last month, proving consumers aren’t being turned off enough by the dual spikes in food and gas to leave their wallets at home.
Still, there are other reasons to be optimistic about current conditions, said Mr. Johnson of Hugh Johnson Advisors.
“Improving equity market prices and employment conditions are helping against a backdrop that does, admittedly, include many negatives,” Johnson said.
Indeed, consumer expectations about the future and the economic recovery are certainly being bolstered by an ever-improving jobs picture. Last month, BLS reported that the economy added 216,000 jobs, a gain that saw the overall unemployment number fall to 13.5 million, or 8.8 %, a two-year low.
BMO’s Lee acknowledged “an increasing number of jobs and a decrease in unemployment” played a key role in her company’s 1.6 point April bounce-back estimate. Consumer confidence is “based a lot on what’s happening in jobs and public perception of future job stability.”