Confidence Game: Consumer, CEO and Investor Confidence August 2008 (Final)
These three indicators should disclose a clear picture of the overall sense of confidence (or lack thereof) on the part of consumers, businesses and investors as the current recessionary period develops.
Today’s final release of the Reuters/University of Michigan Survey of Consumers for August continues to indicate historic weakness in consumer sentiment with a reading of 63, a decline of 24.46% compared to August 2007.
The Index of Consumer Expectations (a component of the Index of Leading Economic Indicators) increased to 57.9, one of the lowest readings since the 1980s recessionary environment, 21.44% below the result seen in August 2007.
As for the current circumstances, the Current Economic Conditions Index remained near record lows at 71, 27.85% below the result seen in August 2007.
As you can see from the chart below (click for larger), the consumer sentiment data is a pretty good indicator of recessions leaving the recent declines possibly predicting rough times ahead.
The latest quarterly results (Q2 2008) of The Conference Board’s CEO Confidence Index increased marginally to a value of 39, nearly the lowest readings since the recessionary period of the dot-com bust.
It’s important to note that the current value has fallen to a level that would be completely consistent with economic contraction suggesting the economy is either in recession or very near.
The August release of the State Street Global Markets Index of Investor Confidence indicated that confidence for North American institutional investors decreased 8.1% since July while European confidence declined 3% and Asian investor confidence increased 3.6% all resulting in an decrease of 6.8% to the aggregate Global Investor Confidence Index.
Given that that the confidence indices purport to “measure investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors”, it’s interesting to consider the performance surrounding the 2001 recession and reflect on the performance seen more recently.
During the dot-com unwinding it appears that institutional investor confidence was largely unaffected even as the major market indices eroded substantially (DJI -37.9%, S&P 500 -48.2%, Nasdaq -78%).
But today, in the face of the tremendous headwinds coming from the housing decline and the mortgage-credit debacle, it appears that institutional investors are less stalwart.
Since August 2007, investor confidence has declined significantly led primarily by a material drop-off in the confidence of investors in North America.
The charts below (click for larger versions) show the Global Investor Confidence aggregate index since 1999 as well as the component North America, Europe and Asia indices since 2007.
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