Confidence Game: Consumer, CEO and Investor Confidence May 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.

Last week’s final release of the Reuters/University of Michigan Survey of Consumers for April confirmed another startling plunge in consumer sentiment to a reading of 59.8, a decline of 32.28% compared to May 2007.

It’s important to note that this is the lowest consumer sentiment reading seen since the recessionary period of June 1980 which, according to many metrics most notably employment, was the most severe recession seen in the U.S. since the Great Depression.

The Index of Consumer Expectations (a component of the Index of Leading Economic Indicators) fell to 51.1, the lowest reading since October 1990’s recessionary environment, 34.15% below the result seen in May 2007.

As for the current circumstances, the Current Economic Conditions Index fell to 73.3, 30.26% below the result seen in May 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 (Q1 2008) of The Conference Board’s CEO Confidence Index fell to a value of 38 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 May release of the State Street Global Markets Index of Investor Confidence indicated that confidence for North American institutional investors increased 8.0% since April while European confidence declined 0.5% and Asian investor confidence increased 0.2% all resulting in an increase of 8.7% 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.

Confidence Game: Consumer, CEO and Investor Confidence March 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 March further confirmed the recent plunge in consumer sentiment to a reading of 69.5, a decline of 21.38% compared to March 2007.

It’s important to note that this is the lowest consumer sentiment reading seen since the recessionary period of February 1992 which, according to Richard Curtin, the Director of the Reuters/University, indicates that a recessionary environment is firmly upon us.

“A recession has occurred whenever the Sentiment Index has declined as much as it has fallen during the past year, including the recessions occurring from the mid 1950's to the early 2000's,”

The Index of Consumer Expectations (a component of the Index of Leading Economic Indicators) fell to 60.1, 23.63% below the result seen in March 2007 and 31% below the most recent peak set in January 2007.

As for the current circumstances, the Current Economic Conditions Index fell to 84.2, 18.65% below the result seen in March 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 (Q4 2007) of The Conference Board’s CEO Confidence Index fell to a value of 39 with the “current economic conditions” component registering 33.54, the lowest readings since the recessionary period following the dot-com bust.

It’s important to note that on every instance that the CEO “current economic conditions” index dropped below a level of 40, the economy was either in recession or very near.

The March release of the State Street Global Markets Index of Investor Confidence indicated that confidence for North American institutional investors increased 6.91% since February while European and Asian investor confidence increasing comparably all resulting in an increase of 6.61% 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.