June 27, 2012
The consumer confidence index is a measure that gets way more attention than it deserves. It is has two components, a current conditions index and a futures expectations index.
While the current condition index tends to be a good measure of consumer spending, it has little predictive power. In other words, if the June reading is high, then June will probably be a good month, but it doesn’t tell us much about July and August.
On the other hand, the future expectations index is erratic and provides almost no information about spending in the present or future. That is why when the consumer confidence index falls, as it did yesterday, and the fall was driven by the expectations index, it is best ignored.
Comments