The Mood Improved. The Shopping List Did Not.
Consumer confidence rose for the first time in four months. The Conference Board put its index at 91.7 on October 27, against a consensus of 81.0.
September was revised up to 84.2. Fergus McCormick, a senior economist at the Conference Board, tied the gain to better views of business conditions and to gasoline prices easing.
Four days earlier the University of Michigan published its own October reading. At 48.0, it was the second-lowest reading in the history of that survey.
The key observation is that two surveys of American consumers covering the same month moved in opposite directions.
Only the first one was widely reported.
The two indexes carry the same label and ask different questions. The Conference Board asks five, and two of them are about employment.
Michigan asks about fifty. They are built around personal finances, prices, and what a household can afford to buy.
Both readings fit the month they measured. Claims for unemployment benefits ran at 194,000 in the week ending October 17, near a 57-year low.
Over the year to September, real average hourly earnings fell 0.7 percent, according to the Bureau of Labor Statistics. A worker can hold both of those facts at once.
A survey cannot. It has to weight them, and the weighting is why one index rose and the other did not.
Where the two agree is the part neither headline carried. The Conference Board reported that consumers planned less spending on durable goods and on services.
The drop in Michigan's current conditions index came entirely from buying conditions for durable goods, which fell to a record low. Two instruments that disagree about the mood agree about the purchase.
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This is a job-price divergence.
Layoffs are rare and prices are still rising. The first sets how safe a household feels, and the second sets what that household can carry.
Five questions weighted toward employment will find the safe part. Fifty questions built around prices and purchases will find the other one.
The Conference Board's expectations index rose 6.9 points to 72.6, which only partly reversed three straight monthly declines. Average inflation expectations for the next twelve months were 5.8 percent.
That figure came down in October. The Conference Board called it elevated.
The labor differential, meaning the share calling jobs plentiful minus the share calling them hard to get, was 5.3 points. It was up 2.4 points on the month.
The Conference Board collected its responses between October 1 and October 21. Brent crude settled at 116.72 dollars on October 23, after the survey had closed.
Which index sits closer to behavior is not settled by either release. Both record what households say, and only spending shows what they do.
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Which one the wallet follows
Buying conditions for durable goods. The Michigan survey asks each month whether now is a good time to buy a large item. The answer arrives before the purchase does. A recovery would show the price complaint easing, and a second record low would show it hardening while the mood improves. (Source: University of Michigan)
Revolving consumer credit. The monthly credit report separates card balances from auto and student loans. A gap between what a household feels and what it earns tends to land on the card line. Rising balances would show households bridging that gap with credit. Flat balances would show them dropping the purchase instead. (Source: Federal Reserve)
Real average hourly earnings. This divides the wage figure by consumer prices, which is the ground the Michigan questions are built on. A return to growth would close the gap from the price side. Another yearly decline would hold the two surveys apart. (Source: Bureau of Labor Statistics)
When two surveys of the same people disagree, the split is in the questions rather than in the people. The line they both answer the same way is the one worth reading.
Talk soon,
The Playbook Daily
