The Conference Board Consumer Confidence Composite index jumped 3.8 points in July to 121.1 points, the highest level since March and 25% higher year on year (y/y). On a three month moving average (3MMA), basis the index measured 118.7, +0.6 points month on month (m/m). For reference, the index was 100 in the base year of 1985.

The Consumer Confidence Survey measures the level of confidence individual households have in the performance of the economy. Survey asks a nationwide representative sample of 5,000 households, of which approximately 3,500 responses.

consumer-confidence-fig1Figure 1 shows the Composite, Present and Expectation indexes from 2005 to present. The Present Situation score increased 3.9 points to 147.8 its strongest reading since June 2001. The Expectation sub-index scored 103.3, up 3.7 points month on month, (m/m). The Expectation index has not advanced as strongly as the Present Situation index. It moved sharply higher immediately following the presidential election peaking at 112.3 in May, but since then has fallen to close to its year-to-date (YTD), average of 103.7. Despite the roll-back the Expectation index is 20% than it was 12 months ago.

Figure 2consumer-confidence-fig2 chart two sub-indexes, 1] Employment – jobs plentiful, (blue-line) and 2] Expected income – increase, (green-line). The jobs plentiful index is up 35.9%, 3MMA year on year, (y/y), while the expectation of higher wages index is up 15.8% 3MMA y/y.

Consumer planning to make a major purchase within the next six months recorded mixed results. Consumers planning to purchase an automobile increased 0.1 point m/m to 12.7%, up two months in a row. New appliance purchase expectations fell 6.0 points m/m to 46.1%, while those looking to buy a house surged by 0.7 of a point to 6.7% to its highest level in seven months.

Breaking the responses down by age cohort reveals that confidence in the under 35 age group fell, while both the 35 to 54 and 55 and older groups confidence gained.

Consumer spending is expected to increase as the year progresses despite a weaker than expected start as a function of wage growth and solid credit availability. In addition cyclical low unemployment will broaden the consumer base. Construction jobs are expected to continue to expand its share of the job market, while manufacturing’s job ratio is expected to diminish. Business are projected take advantage of widely available low cost capital to grow and expand.

At Gerdau we routinely monitor consumer confidence, readily available credit and spending habits since we know that increased consumer spending translates to stronger steel sales and vice versa.