Floyd Norris has an interesting discussion of the Conference Board's consumer confidence index in his "Off the Charts" column. The main takeaway is that the current conditions index has been on a consistent upward path since the trough of the recession while six-month expectations index has gyrated erratically with little clear trend.

It is worth adding a bit more to this analysis. The current conditions index does actually tend to track current consumption reasonably closely. On the other hand, the six-month expectations index doesn't really tell us much about what consumers are doing. Even purchases of big-ticket items like cars and houses have little correlation with the expectations index.

As  a practical matter, the expectations index tends to follow news reporting of economy. This makes sense since not many people are sitting around with their economic models making predictions about inflation, unemployment, and growth over the next six months. Rather than being a meaningful measure of consumer confidence, this expectations index is telling us whether the media is highlighting positive or negative news about the economy. That might be worth knowing, but it is has little to do with consumer behavior. 


Note: Typo corrected.

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