What Does Consumer Confidence Say About the Economic Forecast?

The Conference Board reported their latest survey of consumer confidence, and it's no surprise that their results mirrored the gloomy report issued last week by the University of Michigan:

What does consumer gloom mean for the economic forecast?  Let's look at some history:


Two obvious conclusions:

  1. Growth of retail spending tends to correlate with attitudes, but
  2. The correlation is sporadic.  Specifically, the two concepts diverged in the early 1980s and again in the early 1990s.

For my money, I'd rather look at consumer fundamentals that surveys–we economists are trained to look at what people do, rather than what they say.  Right now the fundamentals are not as dour as consumers are:

  • Employment roughly flat (down by tenths of a percent the last few months)
  • Wage rates rising about in line with inflation (just tenths of a percent lower than total inflation)
  • Unemployment rate below its long-run average.

The bad attitudes are certainly not good news; but the bad news is moderately bad, not terrible.