April’s Consumer Confidence Research Notes

by Jim Baird on April 26, 2011

Improving labor market trumps rising food and energy costs

Confidence levels rose marginally in April to a reading of 65.4, still well below the recent peak of 72 in February. The gain over last month, while not substantial, is nonetheless encouraging given the recent spike in food and fuel prices.  The survey suggested that inflation expectations actually eased a bit, while consumers viewed current broad economic conditions more favorably. 

Inflationary pressures may represent the most significant near-term risk to consumer confidence and spending.  A sustained period of heightened prices is a near certainty to be a source of irritation that would force consumers to trim spending in other discretionary areas of their budget, potentially contributing to an incremental slowdown in the economy as a whole.

Since its inception in 1967, the Conference Board’s measure of confidence has averaged 94.5.  Despite the fact that the recession itself ended nearly two years ago, confidence remains well below that average, illustrating the significance of the lingering effects of that recession. 

Home prices continue to show weakness as foreclosure rates tick higher, inventory levels edge upward, and homes sales volume remains depressed.  For most families, their personal residence remains their primary asset.  Despite the greater emphasis on personal savings and debt reduction in recent years, consumers remain burdened by relatively high debt levels.

The recent acceleration in the pace of private sector job creation has apparently not been lost on the consumer.  Further improvement in consumer mood seems likely should job creation continue at an improved pace.  As we’ve noted previously, the sources of uncertainty noted above are not going to be resolved overnight and the “two steps forward, one step back” pattern of improvement in economic conditions in the aftermath of the Great Recession is likely to weigh on consumers for some time to come.

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