November 28, 2013
Neil Irwin hit on one of my pet peeves last week, the meaninglessness of the consumer confidence indices. Big upswings or drops in these indices often make headlines, however they bear almost no relationship to actual movements in consumption.
The story, or at least my story, is that people are largely answering based on what they hear in the news. If the papers are filled with stories of doom and gloom based on a budget standoff, looming debt default or some other bad story, people give negative responses in the survey. On the other hand, if the papers are filled with glowing accounts of a booming stock market, people give positive answers, even though the vast majority of people own little or no stock. Of course these events don’t influence how much people actually spend, so the sharp movements in the index don’t correspond to changes in consumption patterns.
There is a minor qualification worth making. The indices are primarily moved by the future expectations components. These are highly volatile. By contrast, the current conditions indexes tend not to move very much month to month. These do track more closely with consumption. This means that the current conditions indices can be seen as providing us some information on consumption, even if the future expectations indices give us nothing.
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