Consumer sentiment recession RESTRICTED

Editor’s Note: Gad Levanon leads the Labor Markets Institute at The Conference Board. Lynn Franco is the organization’s senior director of Economic Indicators and Surveys. The opinions expressed in this commentary are their own.

Earlier this week, The Conference Board released the results of its Consumer Confidence Index for October.

Most headlines focused on the monthly index’s top-line takeaway, which shows that confidence dipped marginally. But underneath the hood lies a treasure trove of economic data. And when analyzed, it can paint a much more accurate — and much sunnier — picture of the US consumer psyche and the trajectory of the economy.

Is a recession on the horizon?

Recession fears have been percolating for months. Amid the saber-rattling around trade, poll after poll has found the business community sounding alarm bells.

But what about the actual consumer? After all, their spending accounts for over two-thirds of the US economy.

One part of the index — the Expectations Index — helps shed light on how consumers anticipate the economy performing in the near future. In recent years — and in this week’s results — the Expectations Index has hovered around a healthy 100. For context, the survey hit a high of nearly 126 back in the late ’60s, and plummeted to about 27 in 2009, when we were in the depths of the financial crisis.

Periods of decline in this area — which has happened in recent months — do not signal recession, as long as the level doesn’t fall too far for too long. A steady decline warrants concern, and if it approaches somewhere in the ballpark of 80, consumers may start raising the red flag.

So when it comes to the growing chatter about a recession, our index suggests it’s just that: all talk. Consumers don’t foresee a recession, at least not anytime soon.

Without a doubt, the US economy has experienced its fair share of jolts this year — especially on the trade front, including new tariffs and the threat of more to come. But consumers have largely weathered the trade tensions, having emerged relatively unscathed. At this point in time, they’re the economy’s last line of defense, propping it up despite a relatively glum business community and what seems like a never-ending string of geopolitical shocks.

Will wage growth start picking up?

The Consumer Confidence Index can also help forecast whether individuals’ wages are likely to grow.

The index reveals both the percentage of respondents who say jobs are “plentiful” and those who say jobs are “hard to get.” The gap between the two is known as the labor market differential, one of the hidden gems of the survey. The value of this indicator comes from its high correlation with the unemployment rate. While they are derived from different sources, the two indicators almost always mirror each other. As the unemployment rate goes up, the labor market differential tends to go down. And vice versa.

In October, the share of respondents who said jobs are “plentiful” was 35 percentage points higher than those who said jobs are “hard to get.” It marks one of the largest gaps ever recorded in the index’s 50-plus-year history. The indicator suggests that the labor market is very tight — and even more so than in 2007, before the Great Recession. That spells good news for workers, who are in great demand. And that means their wages will continue accelerating, building on the gains in recent years, based on our own analysis of BLS data.

Will consumers be merry this holiday season?

Looking ahead, the Consumer Confidence Index can tell us about the outlook for the remainder of 2019. Are consumers poised to have happy holidays?

If the first three quarters of the calendar year provide any indication, the answer is shaping up to be a resounding ‘Yes.’ The Index has been at a near-historic high through most of 2019, clocking in at a monthly average north of 120. In other words, Americans are comfortable spending as we enter the year’s final stretch.

But do they have the resources to act on that cheery mood? Almost regardless of which indicator you choose — wages, activity by the Fed, employment growth, credit availability or stock market strength — things are looking up.

That being said, consumers will still be on the lookout for good bargains and incentives. You don’t need to dig deep into economic indicators to know that.