Consumer and Business Confidence is Down

BY Brian Loftus
2/14/2019 - HVAC Analytics

Consumer Confidence, as measured by the University of Michigan Surveys of Consumers, remained in the high-flying 98-to-100 range for the majority of 2018. The stock market was very volatile at the end of 2018 and then there was the government shutdown from December 22 to January 25. Following those disruptions the January 2019 report sunk to 91.

3.1

The blue line and shaded area in the chart above illustrate that over the past 30 years the percentage of the installed base of residential equipment being replaced has basically ranged from 5% to 7%. That corresponds to equipment that is replaced after 15 to 20 years of service. With this graph, we are illustrating the role that consumer confidence has on the replacement decision. Homeowners with a repair-or-replace option are more likely to opt for replacement when their confidence level is over 90. What is noteworthy here is the red line of confidence is rolling over while small business owner confidence has also declined recently.

Consumer Confidence, as measured by the University of Michigan Surveys of Consumers, remained in the high-flying 98-to-100 range for the majority of 2018. The stock market was very volatile at the end of 2018 and then there was the government shutdown from December 22 to January 25. Following those disruptions the January 2019 report sunk to 91. Since this item can be influenced by short term news, we calculate a rolling 3-month number and anticipate some improvement now that the shutdown is over. What is undeniable is the confidence level influences the replacement decision for homeowners. Could the same be said for business owners? The January 2019 Small Business Optimism Index is now at its lowest level since November of 2016. (Small Business Economic Trends, © NFIB Research Center)

3.2

We are new to the NFIB (National Federation of Independent Business) Optimism Index. We see that it popped in 2016 after the Presidential election, and after a recent decline is now approaching those pre-election levels. Looking back further we see a pattern similar to the Consumer Confidence index. During the year ahead we will be exploring correlations with this index for insight into HVACR equipment demand.

This article was published in the February 2019 edition of the Data Driven Newsletter.