With Consumer Confidence It is Only Current Conditions That Matter

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Tuesday, 28 August 2012 10:55

There may be a temptation by some in the business media to make a big issue out of the sharp decline in the Conference Board's measure of consumer confidence. Those so tempted would be wrong.

The key point to note is that almost all of the decline was in the future expectations index. The current conditions index was essentially unchanged, edging down from 45.9 to 45.8. While current conditions index does fit reasonably well with current consumption, there is little correlation between the future expectations index and consumption. This index is highly erratic and therefore not a good predictor of consumption either present or future.