Consumer confidence jumped in December, the first increase since June of this year. The Conference Board Consumer Confidence Index was 93.7, increasing 8.8 points from the revised 84.9 in November. Economist's forecasted index for December was 83.0. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.
The primary reason for the increase was a 14.2 point improvement in the Expectations portion of the index. The Expectations Index, a measure of future economic activity, increased to 91.5 from a revised 77.3 in November. The Present Conditions Index, another factor in the total composite index, inched up to 96.9 from 96.2 in November. This index is a measure of how consumers perceive the current state of the economy. This increase, though small, is the first in the Present Conditions Index since May 2001. Spending behavior is closely related to consumer's feelings in the Present Conditions Index, which helps explain sluggish holiday sales.
Nearly all survey questions posed by the Conference Board yielded positive increases. Perceptions of the current business and job market also improved, though at a slower rate.
The updated December University of Michigan's Consumer Sentiment Index, a comparable index, increased to 88.8 from 83.9 last month. The component indices increased in December as well. The Present Conditions Index was 99.0 up from 95.3 in November, and Expectations increased 5.7 points to 82.3.
Economists credit U.S. military victories in Afghanistan, perceived reduction in the threat of terrorist activity, and the rebound in the stock market for the boost in consumer confidence.
Although both indices have shown improvement, the Conference Board Consumer Confidence Index remains over 30 points below where it was last December. High unemployment and increasing job cuts remain a threat to confidence levels.
Consumer spending accounts for two-thirds of the economy, so these indices are watched closely. The significant December increases in consumer confidence support predictions that the recession will be relatively brief.
Sources: www.cnnfn.com, 12/28/01
www.conference-board.com, 12/28/01
www.economy.com, 12/28/01
