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Great Expectations and the Consumer Confidence Con Game

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Saturday, 29 March 2014 08:35

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.

Comments (3)Add Comment
typo
written by Jennifer, March 29, 2014 9:31
"people ae sitting"
"are" not "ae" I assume. Also, I think you have this piece double-posted.
...
written by skeptonomist, March 29, 2014 11:29
It is certainly true, as Dean has been saying all along, that the six-months index is not of much value for anything, contrary to implications in the piece. But what actually influences the responses?

The six-month expectation basically shows subdued long-term variation with lots of noise. But have the media followed that pattern? My guess would be that the media were optimistic in 2006-7, very pessimistic in early 2009, and have improved outlook since - in other words the same pattern as the present-conditions index. Are the present-conditions responses based on media reports or are the six-months reponses based on media reports? If people use what's in the media, do they look at actual data, or what reporters and pundits are saying? If present-conditions responses are not based on media reports, what are they based on? You can't answer these questions without actual data on what has been in the media.
You need "DeanAtHome" and "BestThePress" twitter accounts
written by jaaaaayceeeee, March 29, 2014 11:32

You need "DeanAtHome" and "BestThePress" twitter accounts. Offer part-time, unpaid internships/reading groups recommended by Chris Rock, Colbert, Shakira, KidZoom, Matt Damon, etc.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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