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Published by: jws_list on Feb 24, 2011
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 February 22, 2011
Economics Group
Mark Vitner, Senior Economist
(704) 383-5635
Tim Quinlan, Economist
(704) 374-4407 
Consumer Confidence Index
Conference Board2040608010012014016087 89 91 93 95 97 99 01 03 05 07 09 1120406080100120140160
Confidence Yr/Yr % Chg: Feb @ 51.7%Confidence: Feb @ 70.412-Month Moving Average: Feb @ 57.2
Confidence vs. Unemployment
Conference Board Consumer Confidence, Unemployment Rate025507510012515017587 89 91 93 95 97 99 01 03 05 07 09 112.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%11.0%Confidence Yr/Yr % Chg: Feb @ 51.7%Confidence: Feb @ 70.4 (Left Axis)Unemployment Rate: Jan @ 9.0% (Right Axis)
Confidence Rises to Strongest Level in Three Years
Consumer confidence in February posted a big increase and recorded thehighest overall level of confidence among U.S. consumers in three years.Both the present situation and the expectations measures improved on themonth, lifting both components to multi-year highs.Confidence numbers have a tendency to be influenced by changes in thelabor market as well as movements in gasoline prices. Neither of thesedynamics moved in a way that we would expect to translate into improvedconfidence, making the gain in February all the more positive in terms of consumer sentiment. Gas prices have been trending higher in recent weeks.The unemployment rate did come down to 9.0 percent in the latest jobreport from the Department of Labor. However, the “improvement” in theunemployment rate is more reflective of workers dropping out of the laborforce than it is a signal that job growth is strong enough to bring down theunemployment rate.
How to Reconcile the Gap Between Confidence and Spending?
The present level of confidence among consumers reflects a significantimprovement relative to the lowest readings on record that were plumbedin the early months of 2009. Still, even at the current improved level of 70.4, confidence remains low on a historical basis. The average level forconsumer confidence since 1980 is just over 93 and during periods of expansion it is not uncommon to see confidence well north of 100. Not only is confidence below where it should be during an economic expansion, it iswell below the long term average. Yet consumer spending grew at a 4.4percent annualized rate in the fourth quarterthe fastest pace of growth inconsumer spending since 2006. Retail sales were higher in January as well,suggesting that consumer spending momentum continued into the currentquarter. This seems to be incongruous with an environment where thejobless rate remains so elevated and where confidence remains so low.Consumers have been paying down debts and rebuilding savings on trendover the last year and a half or so. After all the belt tightening over thatperiod, consumers hit the stores in force during the holidays. We even saw revolving debt increase in December for the first time since 2008. Ourforecast looks for spending growth to decelerate in 2011; however,consumers will continue to spend, but the pace of spending growth will bemore muted and perhaps more reflective of the still-low levels of consumerconfidence that we see in this report. On the upside, the payroll taxdeduction should pad consumers’ wallets and help spur spending, providedthe bump is not offset by higher prices at the gas pump. 
Confidence vs. Retail Sales
Conference Board Consumer Confidence, Retail Sales ex. Autos030609012015018021093 95 97 99 01 03 05 07 09 11-12.0%-8.0%-4.0%0.0%4.0%8.0%12.0%16.0%
Confidence Yr/Yr % Chg: Feb @ 51.7%Confidence: Feb @ 70.4 (Left Axis)Retail Ex-Auto Yr/Yr % Chg 3-MMA: Jan @ 6.2% (Right Axis)
 Source: U.S. Department of Labor, U.S. Department of Commerce, The Conference Board, The Nielsen Company andWells Fargo Securities, LLC
Strong Consumer Confidence in February 
Consumer confidence crested above 70 for the first time in three years as more consumers believe in theeconomic expansion. Labor measures improved and more consumers are expecting incomes to increase.

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