A quick look at a timely topic of interest - with a brief review of why it could matter to investors.

Chart of the Week

April 27, 2015

Consumer confidence: playing catch-up
Consumer and CEO confidence measures: Mar 2013 - Mar 2015


Source: Bloomberg, as of 3/31/2015. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The bottom line:

  • Confidence remains a precious commodity amid the still-slow US economic recovery.
  • Yet confidence, like beauty, is a perception—and until recently consumers have viewed the economy very differently than business leaders.
  • CEO confidence improved rapidly following the recession as earnings rebounded and the Federal Reserve (Fed) went all out to support the economy with low rates and other forms of monetary accommodation.
  • However, consumer confidence remained depressed for a long time.
  • Yet over the past 12 months, the consumer confidence index has advanced nearly 5x that of the CEO confidence index—21% versus 4.5%.1
  • That's gone a long way to close the gap. Longer-term, since the February 2009 bottom for both indexes, CEO confidence is up 338% versus 310% for consumer confidence.
  • While both measures are now well above average levels, they also remain below all-time highs—30% below for consumer confidence and 18% below for CEO confidence.
  • Recent gains in consumer confidence are almost certainly related to lower gasoline prices, but also improving labor market conditions, including: record high household net worth ($82.9 trillion in 4Q14, up 5.2% from 4Q13), the highest level of job openings (5.133 million in February) since January 2001 and accelerating wage gains (average hourly earnings accelerated at a 4% annualized rate in 1Q15, the fastest pace in over six years).2
  • For CEOs, earnings have undoubtedly bolstered confidence. But overall, earnings growth has been largely driven by margin expansion and stock buybacks rather than by organic sales growth—factors that may limit confidence in future gains.
  • Of course, consumers with more buying power would be a definite positive for sales growth—even if corporate profit margins might feel some squeeze from any rise in wages.
  • More importantly perhaps, a stabilizing dollar, the beginning of Fed policy normalization, improving European growth prospects and a bottom in oil prices could go a long way in alleviating recent uncertainties about corporate prospects.

The chart:

  • The chart shows the index level of the Conference Board Consumer Confidence Index and the CEO Confidence Index over the past two years.
  • The level of the Conference Board Consumer Confidence Index as 101.3 in March 2015, down slightly from 103.8 in January. The index began in February 1967 and its average level since then is 92.5. The all-time low of 25.3 was reached in February 2009 and the all-time high of 144.7 was reached in January 2000. At 101.3, consumer confidence is 30% below its all-time high.3
  • The level of the CEO Confidence Index was 6.48 in March 2015. This index began in October 2002 and values can range between 1 and 10. The average since inception is 5.68. The record low of 1.54 was also reached in February 2009 and the record high of 7.94 was set in January 2004. At 6.48, CEO Confidence is 18.4% below its all-time high.4


1 In March 2014, the Conference Board Consumer Confidence Index was 83.86. In March 2015 it was 101.83. That represents a 21% gain. In March 2014, the CEO Confidence Index was 6.2. In March 2015 it was 6.48. That represents a 4.5% gain. The percentage gain in the consumer confidence index 4.7x the percentage gain the CEO confidence index. For the 2-year period the consumer confidence index is up 63.6% vs 17% for the CEO confidence index, a difference of 3.75x in favor of the consumer confidence index.
2 Sources: Bureau of Labor Statistics and Federal Reserve via Bloomberg, as of 3/31/15.
3 Source: Bloomberg, as of 3/31/15.
4 Source: Bloomberg, as of 3/31/15.


The Conference Board Consumer Confidence Index is a barometer of the health of the U.S. economy from the perspective of the consumer. The index is based on consumers' perceptions of current business and employment conditions, as well as their expectations for six months hence regarding business conditions, employment, and income. The Consumer Confidence Index and its related series are among the earliest sets of economic indicators available each month and are closely watched as leading indicators for the U.S. economy.

The CEO Confidence Index is based on a survey of mid-market CEOs each month by Chief Executive Magazine. It rates CEO confidence about where they think their business will be 12 months from now on a scale of 1-10, with 10 being the highest.

The Federal Reserve Board ("Fed") is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

Organic growth refers to the growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.


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Will the current wave of central bank easing jump-start the world's economies?


Will the current wave of central bank easing jump-start the world's economies?

No - The real issues are structural - real progress on labor reform and regulatory excess will have more impact
No - Deflation is already taking hold, making monetary policy changes ineffective
Yes - The US model shows that monetary easing can help economies heal in the medium term
Yes, but it will take even  longer than it did in the US, and the delay will have a negative political impact

Previous month Poll

What would be the best news for markets for the remainder of the year?

Strong US corporate earnings validate US economic expansion
Strength in the US dollar convinces the Fed to keep short rates low longer
European Central Bank bond buying rekindles growth in European Union countries
Growth in China strong enough to leave room for financial system and structural reform