Consumer Confidence Improved Last Month, But Payroll Tax Extension Important

Both the Thomson Reuters/University of Michigan Consumer Sentiment Index and The Conference Board’s Consumer Confidence Index improved last month, finally getting back to last summer’s levels, which are still nothing to get excited about. But they have clawed their way back following the debacle of the debt-ceiling disaster in August.

The University of Michigan Sentiment Index rose to 64.1 in the final November reading, up from 60.9 in October, but still more than 10% lower than last year’s November reading of 71.6. The Conference Board’s confidence number, always more volatile, jumped to 56 from 40.9.

Lynn Franco from The Conference Board analyzed the numbers this way: “Consumer assessment of current conditions finally improved, after five months of steady declines. Consumers’ apprehension regarding the short-term outlook…eased considerably. Consumers appear to be entering the holiday season in better spirits, though overall readings remain historically weak.”

University of Michigan Surveys Chief Economist Richard Curtin remains very concerned about an extension of the payroll tax cut and unemployment benefits, however. “While it is too early to determine how the failure (of extensions) will influence consumers’ expectations, the lack of an extension…will have an immediate negative impact on consumers…and could further dampen holiday spending.”

As we went to press, passage of the extensions was uncertain. The U.S. Senate failed to pass competing measures from the Democrats and Republicans last week. Many Republicans in the House appear to be unwilling to extend either the payroll tax cut or unemployment benefits, in spite of an apparent desire by the body’s Republican leadership to find a compromise.