Consumer Confidence Rises Slightly in October

consumer confidence up slightly
consumer confidence up slightly

The Consumer Confidence Index unexpectedly ticked up 1.6 points to 50.2 in October, the Conference Board said Tuesday, as Americans became slightly more optimistic about the job market.

A Bloomberg survey had expected the index to rise to 50.0 from a revised 48.6 in September, up from the originally estimated 48.5 September reading. The index was at 53.5 in August, 50.4 in July, and 52.9 in June. It hit a record low of 25.3 in April 2009.

Lynn Franco, director of the Conference Board's Consumer Research Center, said while confidence did rise in October, investors need to keep in mind that the index is still at a low level.

"Consumer confidence, while slightly improved from September levels, is still hovering at historically low levels. Consumers' assessment of the current state of the economy is relatively unchanged, primarily because labor market conditions have yet to significantly improve," Franco said, in a statement. "And, despite the uptick in expectations, consumers continue to be quite concerned about the short-term outlook. Both present and future indicators point toward more of the same in the coming months."

Index Components: Little Change in October

The index's components were mixed in October, with no significant change in the economy's outlook, but with a slightly brighter view about jobs.

Regarding the economy's outlook, those expecting an improvement in business conditions over the next six months increased to 16.0% in October from 15.0% in September, while those expecting business conditions to worsen decreased to 14.1% from 16.6%.

On current conditions, those claiming conditions are "good" rose to 8.5% in October from 8.2% in September, while those claiming business conditions are "bad" decreased to 41.9% from 46.0%.

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As for future job prospects, the results were mixed. Those anticipating fewer jobs in the months ahead declined to 22.0% in October from 22.6% in September, while those anticipating more jobs dipped to 14.1% from 14.5%.

Economists monitor the Consumer Confidence Index because, historically, rises in consumer confidence are directly correlated with increases in consumer spending, which usually accounts for 65 to 70% of U.S. GDP. If confidence rises, and a trend forms, that most likely means good things are ahead for corporate revenue and earnings; falling confidence indicates the opposite.

Consumers Remain Cautious

October's consumer confidence index shows both a glass half-full and one half-empty. On the bright side, confidence for the month rose from a seven-month low, and popped above 50 for the first time since August.

On the down side, confidence remains at a low level, and consumers' assessment of the economy stayed essentially unchanged: they are not expecting either a sudden acceleration in economic growth or a substantial improvement in the job market.

In sum, the fragile economic recovery continues to weigh on consumer confidence -- and if that attitude persists, it's likely to restrain consumer spending during the upcoming holiday season.