Global Economic 'Mojo' Still Lacking

As of Q3 2011, the citizens of less than 20% of the countries involved in Nielsen's Global Consumer Confidence, Concerns, and Spending Intentions Survey were on average confident in their future economic confidence. Not surprisingly, Nic Colas of ConvergEx points out, six were in Asia, the least confident were in Eastern and Peripheral European nations, and furthermore overall global consumer confidence remains 9.3% below 2H 2006 (and 6.4% below Q4 2010) readings as the global economy still has a long way to get its 'mojo' back. Colas points to the fact that 'confidence is an essential lubricant of any capitalist-based system' and one of the key challenges that worst hit Europe (and other regions and nations) face is capital markets that are assessing the long shadow of the Financial Crisis of 2007-2008 and the ongoing European sovereign debt crisis impact on the world's Consumer Confidence.


Nic Colas, ConvergEx Group: Confidence Games around the World


Today we review the Nielsen Global Consumer Confidence, Concerns and Spending Intentions Survey with an eye to comparing the most recent readings of country-specific and regional sentiment to the 2010 data as well as that prior to the financial crisis.  While the Street doesn’t often focus on this particular dataset, its combination of breadth (50+ countries) and depth (+28,000 online consumers) makes it uniquely useful in gauging global levels of consumer confidence.  The upshot is that as of Q3 2011, only 11 of the 56 countries surveyed had citizens that were, on average, confident in their future economic prospects.  Not surprisingly, six were in Asia.  Versus both pre-crisis levels and those of 2010, the most recent measured levels of confidence during Q3 2011 were 9.3% below 2H 2006 readings and 6.4% those of Q4 2010.  In short, most of the global economy still has a long way to go in getting its “Mojo” back.


For such a seemingly simple crime, the ‘Confidence Game’ is a relatively modern invention.  And no surprise to the denizens of the Big Apple, it was invented (or at least made famous) right here in New York City.  On July 8th, 1849 the New York Herald ran an item in its crime section noting the arrest of one William Thompson.  His scam was breathtakingly simple:

  • Dress like a wealthy man of leisure
  • Walk up to another man of leisure in the street
  • Strike up a conversation that gives the impression that the two of you are acquainted
  • Ask for the gentleman's watch in the following way: "Have you confidence in me to trust me with your watch until tomorrow?"
  • Take the watch and walk away, laughing as if the whole thing is little joke between two friends, never to be seen again

The only problem Mr. Thompson encountered was when he relied too much on the city’s large population to prevent his marks from ever spotting him a second time.  Sure enough, someone who had given him a watch valued at $2,800 in today’s money (think of a nice used Rolex) pointed him out on the streets to police and he was arrested after a brawl with the arresting officer.  One of his former cellmates from Sing Sing identified him at the stationhouse.  The case made the front page during the subsequent trial, since the accused could rightly say that he had been given the watches willingly rather than by force.  How could it be theft?


There is a great quote from David Mamet’s movie House of Games, spoken by a veteran con man, which neatly summarizes why such scams work: “It’s called a confidence game.  Why? Because you give me your confidence? No.  Because I give you mine.”  If you’ve ever been the target of a scam, you know this is true.  The first “tell” of someone running a game on you is that they appear TOO familiar, TOO friendly.  They are trying to make you feel like they have total trust in you.


But in this little seed of a criminal idea is a greater and more important truth: confidence is something that is shared by two or more people.  It can grow or shrink, quickly or slowly, and has its roots in the social wiring most human beings share.  And from an economic standpoint, confidence is an essential lubricant of any capitalist based system.  You need confidence in the legal system, the market’s ability to set prices fairly, and in your fellow citizen to hold up their end of a bargain, just to name a few structural necessities.  And you need confidence that the underlying economy is sound, that you will continue to have a job, that interest rates will remain stable, that inflation is under control, and so forth, before you will spend freely.

One of the key difficulties capital markets face at the moment is the challenge of assessing the long shadow of the Financial Crisis of 2007-2008 and the ongoing European sovereign debt crisis on the world’s Consumer Confidence.  While many countries have local surveys of their populations, no two measurements are done exactly the same.  This makes it hard to compare results around the world and over time.  We recently came across the Nielsen Global Online Consumer Confidence, Concerns and Spending Intentions survey, which is a large scale (+28,000 people) multinational (+50 countries) and at least a few years span of time (2005 to the present).  While it is likely that short-ish continuity that keeps this dataset from wider use on Wall Street, it is long enough to encompass the period before and after the Financial Crisis.

We’ve included several tables from the Nielsen data, and here are our key takeaways:

As of the most recent readings in Q3 2011, the world is not a very confident place.  A score of 100 is the watershed between confident and dour consumers.  Only 11 of 56 countries manage to break above this line – Brazil, China, Hong Kong (measured separately), Indonesia, Malaysia, Philippines, Thailand, India, Saudi Arabia, U.A.E, and Norway.  The clear trends are that Asian countries and exporters of raw materials rule the global confidence roost at the moment.


The world’s least confident consumers reside in Hungary (last score 37), Portugal (40) Croatia (49) and Romania (also 49).  Greece had a score of 51 in Q3 2011, and Italy came in at 52.


In terms of comparisons to how confident the various countries’ consumer felt before the Financial Crisis, back in 2H 2006, very few countries have been able to bounce back completely.  On average, the world’s major developed and developing economies poll at 9.3% lower confidence than pre-crisis levels.  The ones that have been able to set a new and meaningful fast lap for consumer confidence: Austria, Egypt, Saudi Arabia, Turkey, Philippines, Taiwan, and Thailand.


By region, Europe has actually been much harder hit in terms of consumer confidence from the peak than any other area of the world.  Across both eastern and western Europe, confidence is 23-24% lower than 2H 2006, versus an 11% decline in the Americas and 8% reduction in Asia.  The U.S. is 28% lower, to be sure, but other parts of the region are only down 14% (Canada) to 21% (Mexico).  Brazil, as mentioned earlier, is actually up 18% since 2006.


Over the last year (meaning later 2011 versus 2010), western Europe is a clear laggard as well.  Italian consumer confidence took an unsurprising hit last year, down 27%, with almost all other countries in the region down double-digit percentage terms as well.  The big winners were in the Middle East (Egypt and Saudi Arabia), rather than Asia.  The notable exception here was China/Hong Kong at +4/5%.


There’s very much a “Half empty/half full” debate when it comes to any kind of consumer confidence measurement as a Buy/Sell signal, of course.  In general, it pays to buy risk assets when things look dreadful and sell them when skies clear.  But the current picture of global consumer confidence from the Nielsen survey looks very much like one of those sketches of an iceberg in a children’s textbook.  A lot of the mass is below the surface, with only a tiny bit poking up out of the water.  It pays to consider the possibility that global consumer confidence has gone through a semi-permanent shift to something below the waterline, invisible to producers of goods and markets alike.  If true, this would mean that consumers will only slowly begin to reappear, essentially as the iceberg melts.