Beyond these consumer oriented data points, more publicly reported data is reported by the Conference Board in its Consumer Confidence Index (CCI) and the University of Michigan's Consumer Sentiment Index (MCSI). The two surveys are similar, but have two differences investors should be aware of. The MCSI survey asks one less question about employment. This fact makes the Conference Board survey a better indicator of consumers' expectations about employment. But the MCSI survey's questions focus on consumer expectations one year ahead instead of six months for the CCI. The Michigan survey therefore attempts to predict economic conditions a full year into the future. For a more detailed discussion on these two indicators click here. It should be noted that the CCI is a component of the Composite Index of Leading Indicators. Having highlighted these two indicators, do they predict in any way the future direction of the stock market?
Earlier this week the Conference Board reported that the CCI came in at a lower than expected 52.5 versus expectations of 56.0. As the below chart shows, there does appear to be a positive correlation between the CCI, MCSI and the S&P 500 Index. From the graph perspective, one could argue which is the dependent variable.
|From The Blog of HORAN Capital Advisors|
As noted in a research paper by Sydney Ludvigson(PDF):
"...the evidence from in-sample regressions suggests that measures of consumer confidence—taken alone—have important predictive power for quarterly consumer expenditure growth...the results indicate that both the Michigan and Conference Board overall indexes have modest incremental forecasting power for total personal consumer expenditure growth."