As reported by the Associated Press, “Stocks fell Tuesday after consumer confidence dropped to the lowest level since April 2009. Retailers and other companies that depend on consumer spending had the steepest losses.” Stocks eventually rebounded, but at one point the Dow was down more than 100 points on the Conference Board report.
The problem with all of this is that the August Conference Board Index is based on survey data collected at the beginning of August and is being compared to data collected at the beginning of July. However, to understand the causes of the decline and where consumers are in the cycle of decline and recovery, the question Wall Street and retailers should be asking is "When did the drop actually occur, and where does confidence stand today?"
Gallup can answer that precisely. Gallup’s Economic Confidence Index -- based on ongoing daily measurements -- clearly shows that, while confidence was a bit unstable in early July, it tumbled between mid- and late July as Congress and the White House were wrangling over the debt ceiling bill, and it has since held at that lower level.
Gallup reports economic confidence on both a daily and weekly basis, so we have been reviewing this situation continuously throughout late July and August. Further, Gallup predicted the Conference Board’s decline and Wall Street’s likely unfortunate reaction to it in our economic confidence story last week. Read the key excerpt in the sidebar.
From Gallup's Aug. 23 analysis: Without further economic or political shocks, today's fragile consumer attitudes could rebound some in the coming weeks, although perhaps not as quickly as they fell. One risk is that the markets will erroneously interpret the Conference Board's August Consumer Confidence Index as new information when it is reported next week. Given that the Conference Board's monthly interviews are skewed toward the beginning of each month, any drop in that index will reflect the changes in consumer attitudes between early July and early August that Gallup already detected and first reported last month. Gallup analysis suggests the Conference Board's August index could show a drop of more than 10 points and thus come within 20 points of that trend line's all-time record low. However, if the markets are spooked by this and the Dow tumbles as a result, consumer confidence could be driven further down as well.
There is no doubt that Americans today have low confidence in the economy, and that could have important implications for retailers. However, the latest plunge appears to have been a reaction to government inaction on the debt ceiling (or perhaps to the spotlight the debate put on the nation's debt problems). Perhaps partly because of Standard and Poor's subsequent downgrade of the U.S. credit rating, confidence has since remained depressed. The good news is that while confidence hasn't improved, it also hasn't gotten any worse.
Consumers are in a very fragile place, and it would be a shame if they were further rattled because of a stock market decline based on faulty information about declining consumer confidence.
Gallup has observed that precise scenario unfold in the past, and given the market's continued reliance on the Conference Board Index, it is likely to be repeated. The best way to forestall that is for the Conference Board to be more clear about the limits of its index to pinpoint when changes have occurred, and for Wall Street and others who pay attention to the Conference Board to recognize that the index is roughly two-to-three weeks old by the time it's released; and -- depending on circumstances -- it can be five or more weeks out of date.
The Conference Board's own description of the timing of the recent decline in confidence is anything but clear:
"Consumer confidence deteriorated sharply in August, as consumers grew significantly more pessimistic about the short-term outlook. The index is now at its lowest level in more than two years (April 2009, 40.8). A contributing factor may have been the debt ceiling discussions since the decline in confidence was well underway before the S&P downgrade. Consumers' assessment of current conditions, on the other hand, posted only a modest decline as employment conditions continue to suppress confidence."
It is particularly unclear how the Conference Board determined that the decline in confidence was "well underway before the S&P downgrade" as that downgrade occurred on Aug. 5, near the start of the field period for their August survey and well after the close of their July field period.
Gallup's more timely Economic Confidence metric, based on approximately 500 nationally representative interviews each day, closely tracks changes in the Conference Board, but is reported in near real-time, thus allowing for great precision in determining exactly when -- and therefore why -- consumer confidence falls and recovers.
To stay up to date on this and Gallup's other economic confidence metrics, bookmark these important links:
Weekly: Employment, Economic Confidence, Job Creation, Consumer Spending
Read more about Gallup's economic measures.
View our economic release schedule.
You can also sign up to receive all of Gallup's economic stories by choosing "economy" when you sign up for email alerts.
If you would like to learn more about how our economic metrics work, please email us at
email@example.com. Labels: Conference Board, consumer confidence, economic confidence