U.S. consumer confidence resumes its upward trend in October

Record another, positive data point for the U.S. economy, as consumer confidence unexpectedly rose to 49.5 in November from a revised 48.7 in October, The Conference Board announced Tuesday.

A Bloomberg News survey of economists had expected the index to total 47 in November. It reached 53.5 in September, and 54.5 in August, after hitting a record low of 25.3 in February (base year, 1985=100). Meanwhile, the present-situation index was virtually unchanged in November, at 21 compared to a 21.1 reading in October.

Lynn Franco, director of The Conference Board's Consumer Research Center, said the mood of U.S. consumers entering the holiday season is cautious. "The moderate improvement in the short-term outlook was the result of a decrease in the percent of consumers expecting business and labor market conditions to worsen, as opposed to an increase in the percent of consumers expecting conditions to improve," Franco said in a statement. "Income expectations remain very pessimistic, and consumers are entering the holiday season in a very frugal mood."

Further, consumers' assessment of current conditions was almost unchanged in November. Those claiming business conditions are "bad" decreased to 45.7% in November from 46.7% in October, while those claiming business conditions are "good" increased to 8.1% from 7.8%.

Also, consumers' assessment of the job market was slightly less favorable compared to last month. Those saying jobs are "hard to get" increased to 49.8% in November from 49.4% in October, while those claiming jobs are "plentiful" decreased to 3.2% from 3.5%.

In addition, the board said consumers' short-term expectations improved slightly overall in November. Consumers expecting business conditions to improve over the next six months decreased a bit to 20% in November from 20.8% in October, but those expecting conditions to worsen fell to 15.1% from 18.2%.

Investors should pay attention to the Consumer Confidence Index because, historically, consumer spending has accounted for about 60% to 65% of U.S. GDP. Moreover, rises in consumer confidence are directly correlated with increases in consumer spending. Hence, if confidence rises, and a trend forms, that most likely means good things are ahead for corporate revenue and earnings.

Economic Analysis

The key takeaway from the November consumer confidence report concerns the trend: The index has resumed its upward track. What economists and market analysts don't want to see is a retrenchment -- a downtrend lasting several months. Minor, one-month dips during an economic recovery can be ignored, for the most part. Right now, consumers remain on the fence: They're cautious. They're concerned about the lack of job growth in the economy and high unemployment levels, but they're also mildly hopeful that business conditions will improve.

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