Consumer Expectations Are Always Erratic

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Wednesday, 30 January 2013 05:36

Floyd Norris is worried about a sharp drop in consumer confidence. He shouldn't be.

The cause of the drop is a fall in consumer expectations about the future. Expectations jump around because most people aren't in the business of sitting down and thinking about where the economy will be in 6 months. For the most part, people answer this question based on what they hear in the news. Since news reporting on the economy is very fickle, people's views about the future are very fickle.

Fortunately, expectations have very little impact on people's consumption decisions. Their consumption is far more stable, indicating that people rely on their current economic situation -- wages, job security, housing equity -- in making their consumption decisions and they largely ignore the folks seen and heard pontificating in the media.