Just How Irrelevant And Misleading Is The UMichigan Consumer Confidence Index?
The biggest driver for today's stock market ramp, aside from the initial claims number which next week will be revised substantially worse, was the UMich Consumer Confidence index, which "beat" expectations of 69.5 coming at a five month of 71.6. The fact that a self-referential index can be market moving in the first place is mindboggling: this particular index is mostly driven by moves in the stock market, and any higher read in the index send the lithium addicted stock market higher, which in turn leads to a higher subsequent read in confidence and so on ad inf. This self-recursion probably explains why it is such a favorite of the Fed, which has now openly made clear that it will do anything to facilitate any and every ponzi component to the US economy, of which UMich is precisely one. Yet philosophical matters aside, what is most troubling is the ever increasing divergence between the UMich index on one hand, and another "confidence" index, which is far more comprehensive, far more exhaustive, and far more frequent in its polling: the weekly ABC Consumer Comfort index. If you have not heard of it before, it is precisely due to these three qualifications. And being far more indicative of the true state of how people perceive the economy, it is inevitable that there would be a massive divergence between UMich and the ABC indices. As the chart below demonstrates, this is precisely the case. While UMich is almost back to its December 2007 level, a reading that is so ridiculous when one considers that America now has 42 million people on foodstamps (and had under 28 million in Deceber 2007), the ABC index is now just 5 points away from its all time lows, and its yesterday print of -47 is the lowest it has been since August. All this begs the question: why does the market pretend to trade base off an index as discredited and flawed as the UMichigan Consumer Sentiment.
As a reminder the UMich survey is conducted over the phone and includes a paltry 300 households for the preliminary numbers and 500 for the final one. This happens once a month. On the other hand the ABC News Consumer Comfort Index represents a rolling average based on telephone interviews with about 1,000 adults nationwide each week. There is thus no point in even comparing polling methodologies: it is imminently obvious that UMich is geared to not create a broad sample narrative but as narrow one as possible. Furthermore, there have been occasional allegations in the press that UMich goalseeks its periodic calling list in a way that affords a desired question outcome.
All this means that for anyone who wishes the get a fair grasp of how America is feeling (as closely as possible) the UMich index is the very last thing one should look at. Yet that is never the case, as the index merely reinforces the upward, self-referential bias in the ponzi. A fact which the market most certainly loves.
Yet for those few people who actually care about the truth, and wish to avoid the now ubiquitous propaganda, here is yesterday's narrative associated with the most recent ABC reading.
Consumer Confidence: The Red and the Black
Consumer confidence hangs stubbornly in the deep red heading into
Black Friday, signaling significant challenges for retailers at the
start of the holiday shopping season.
The ABC News Consumer Comfort Index stands at -47 on a scale of -100
to +100, the same as at this time last year and just 5 points from its
worst ever in a Black Friday week, -52 in 2008. (The nearly 25-year-old
index hit its record low, -54, a week later.)
One component of the index, measuring views of the buying climate,
holds little hope. This week 74 percent of Americans call it a bad time
to spend money, and it’s been 70 percent or more continuously for nearly
three years (this is the 150th straight week). That’s shattered the
previous record, just more than a year and a half, from 1991-92.
In the CCI’s two other components, only 10 percent of Americans rate
the national economy positively, and just 44 percent say their own
finances are in good shape – fewer than a majority for the 46th week in a
row, now tied with the record set in June 1992.
As noted last week, the CCI has correlated with retail sales
long-term at a significant .37, and since December 2007 at an especially
robust .63. Moreover, the CCI in Black Friday weeks has correlated with
year-on-year percent change in Q4 retail sales at .53 since 1992 (the
start of the current retail sales time series); and with Q3 to Q4
percent change at .39. Black Friday CCI also correlates significantly
with Q4 retail sales at .48, when both variables are detrended for time.
Its levels in the last 24 Black Friday weeks have ranged as high as
+27 or +28 in the go-go days of 1998, 1999 and 2000, with an average of
Given the CCI’s comparative low this year, it looks like retailers
are going to need heroic efforts to close the deal in what for many is
their make-or-break season. In these times of 9.6 unemployment,
regardless of today’s upward revision in GDP, aggressive pricing may do
more than plastic holly and red-suited Santas.