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Economy in Brief

Consumer Confidence Increases Unexpectedly in December, but Net Gains Based in Fewer Negative Responses
by Carol Stone* December 28, 2006

Consumer confidence rose in December, according to the Conference Board's monthly survey. It went up 3.7 points to 109.0 (1985=100), the highest reading since April. November's figure was revised upward by 2.3% from 102.9 reported a month ago. Both major components, assessments of present conditions and expectations for the coming six months, contributed to December's rise, adding 4.5 points and 3.2 points, respectively. This outcome differs from the University of Michigan survey, which eroded a bit on diminished expectations. It also differs from consensus forecasts, which had looked for a decrease from the original 102.9 to 102.1.

"Present conditions" are measured by responses about general business conditions and the status of labor markets. This month, ironically, fewer consumers said they see business conditions as "good", but the number saying they are "bad" decreased more. There appears to be some improvement in the availability of jobs, as the number seeing jobs as "plentiful" increased 1.2 points, although at 26.9%, that remains below the first seven months of 2006. The proportion of consumers believing jobs are "hard to get" also rose a bit, but just 0.9 point; this too has a less favorable reading than what prevailed in the first half of 2006.

Expectations are mixed. The share of consumers looking for "more jobs" increased 0.7 point to 14.0%, but paradoxically the share expecting their income to go up decreased by 2.4 points. Sources of the rise in expectations are actually more "back-handed": fewer people expect business and employment conditions to worsen.

So, despite the favorable appearance of the overall consumer confidence indexes, the details suggest that people remain skittish. Results concerning interest rates and the stock market also indicate this ambivalence: while many fewer people are looking for higher interest rates, the number of people looking for higher stock prices is down and the number looking for lower stock prices is up. Stay tuned!

Conference Board
 (SA, 1985=100)
Dec 2006 Nov 2006 Oct 2006 Dec 2005 2006 2005 2004
Consumer Confidence Index 109.0 105.3 105.1 103.8 105.8 100.3 96.1
Present Conditions 129.9 125.4 125.1 120.7 130.1 116.1 94.9
Expectations 95.1 91.9 91.9 92.6 89.6 89.7 96.9
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