Consumer Confidence Index (the one that matters) Declines

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Tuesday, 26 March 2013 19:36

The Conference Board's index of consumer confidence fell in March. What is noteworthy for those following the economy is that the current conditions index dropped by 3.5 points to 57.9. This component is the one that actually tracks current consumption reasonably closely, so it is giving us information about the economy.

By contrast the future expectations component is highly erratic and bears little relationship to actual consumption patterns. Reporters generally don't make a point of distinguishing between these two components. This can lead them to misinform the public about the economy.

For example there were many stories last fall highlighting falls in the index based on the future expectations index. These drops were undoubtedly attributable to media accounts warning of the end of the world if we went off the "fiscal cliff." As we now know, consumption spending held up just fine through the fall.

The recent drop in the current conditions index however should be taken as a serious warning that consumers may be tightening their belts. That would not be a surprising response to the ending of the payroll tax cut, plus some amount of layoffs and cutbacks associated with the sequester.

This is just one report among many, but it does suggest that the recovery optimists singing about having finally turned the corner may be wrong.