Friday, October 31, 2008

Confidence Game: Consumer, CEO and Investor Confidence October 2008 (Final)

This post combines the latest results of the Rueters/University of Michigan Survey of Consumers, the Conference Board’s Index of CEO Confidence and the State Street Global Markets Index of Investor Confidence indicators into a combined presentation that will run twice monthly as preliminary data is firmed.

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 October showed a record plunge to consumer sentiment with a reading of 57.6 and dropping 28.8% below the level seen in October 2007.

The Index of Consumer Expectations (a component of the Index of Leading Economic Indicators) also declined notably to 57 remaining 18.69% below the result seen in October 2007.

As for the current circumstances, the Current Economic Conditions Index collapsed to its lowest level seen since at least 30 years to a record low of 58.4 or 40.16% below the result seen in October 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 (Q3 2008) of The Conference Board’s CEO Confidence Index increased marginally to a value of 40, 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 October release of the State Street Global Markets Index of Investor Confidence indicated that confidence for North American institutional investors declined a whopping 24.3% since September while European confidence declined 1.5% and Asian investor confidence declined 0.6% all resulting in a decrease of 17.5% to the aggregate Global Investor Confidence Index which now rests 29.02% below the result seen last year.

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 chart below (click for larger version) shows the Global Investor Confidence aggregate index.