NAHB National Association of Home Builders : Consumer Confidence Decreases in December

The Conference Board recently reported that the Consumer Confidence Index decreased in December, after a modest improvement in November. The Present Situation Index increased by 1.1% from 154.9 to 156.6, while the Expectations Index declined by 10.7% from 111.0 to 99.1 over the last month of 2017. As a result, the Consumer Confidence Index decreased by 5.1% to 122.1 in December on a seasonally adjusted basis, from 128.6 in November.

The Expectations Index, as one of the components of the Consumer Confidence Index, is based on responses to three questions in the survey, including respondents' expectations regarding business conditions, employment conditions and their total family income in the coming six months. Over the month of December, expectations for employment conditions worsened by 7.1% on net, expectations for business conditions worsened by 5.4% on net, and expectations for total family income increased by 0.7% on net. The net calculation tracks the difference between expectations of improvement ('better', 'more jobs' or 'increase') and expectations of worsening ('worse', 'fewer jobs' or 'decrease') across the months.

The Conference Board also reported the share of respondents planning to buy a new home within six months. In December, there were 1.7% of respondents planning to buy a new home within six months, higher than 1.1% in November. As shown in the figure below, despite the monthly volatility, the underlying trend in the share of respondents planning to buy a new home within six months has been moving upward since 2012.

Figure 2 shows both new single family home sales and the share of respondents planning to buy a new home. The red line represents new single family home sales one-month ahead since 1978. The blue line shows the share of respondents planning to buy a new home within six months over the same time. Reports suggests that a prospective buyer signs a contract within 30-60 days. The dashed line is the six-month moving average of the blue line to smooth the monthly volatility.

As shown in Figure 2, new single family home sales have moved closely with the share of respondents planning to buy a new home within six months before 2002 and after 2006. However, between 2002 and 2006, the period of the housing boom, higher new single family home sales were not matched by increases in the share of respondents planning to buy a new home proportionately.

In a previous blog, several scatterplots showed the positive and linear relationship between the six-month moving average of the share of respondents planning to buy a new home and new single family home sales one-month ahead excluding the housing boom years, and the non-linear relationship during the period of the housing boom. The analysis concluded that the share of respondents planning to buy a new home may be a valuable predictor of new single family home sales, especially the period from 2007 to the present.

Tags: consumer confidence, housing boom, linear, new single family home sales, plan to buy a new home, the conference board