Consumer confidence fell in the current month (March). The drop was fairly sharp to 107.2 from 111.2. But the current conditions index improved to 137.6 from 137.1 while the expectations index crashed and burned dropping to 86.9 from 93.8, hitting its lowest value since August of last year.

The chart on the left sketches out the path of consumer confidence and its two components over the past two business cycles. We add a horizontal line showing that current conditions has not yet hit the peak of the cycle that ended in 1990; they are, of course, way below the peak of the past cycle. Expectations have remained contained to a much lower profile than in either of the previous expansions.

But even a quick perusal of this graph reveals that expectations, important as they are, do not tell of the tipping point around recessions. Indeed we have relatively more FALSE signals from weak expectations than from current conditions – although sometimes from both. We see examples in expansion periods of expectations falling, sometimes quite sharply, but with the expansion continuing. The BEST signal of recession is that broad rounded top and fall off in CURRENT CONDITIONS. Presently that signal is not in play. So we continue to regard the ongoing upswing in consumer confidence as a good thing and brush off this month as mere volatility.

For the moment the signal on current conditions is brighter in the Conference Board report than in the U of M report (see graph on the right). What drives confidence/Sentiment?

We use the table below to help to answer that question and to draw comparisons between the U of M and Conference Board reports.The table presents correlation coefficients between the components on each survey (current conditions and expectations) and relates them to underlying economic variables of interest. You can readily see that the correlations for U of M on current conditions differ from the Conference Board on Current conditions and that current conditions differ from expectations and so on.