10 Friday Mar 2017
Posted | March 10, 2017 1:31:02 | Economics
The Fed is a big believer in consumer confidence numbers. I never understood why because I could not see a strong correlation between confidence and spending.
There is a strong correlation, but it isn’t spending habits. John Hussman provides the answer below.
Let’s break out that chart with some vertical bars to better indicate what consumer confidence really measures.
Thanks, John!
Mike “Mish” Shedlock
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I’ve said it before, just slightly different. I said mkts follow consumer confidence, and they don’t crash while it is rising.
Makes total sense. Mkts are highly influenced by emotion.
There has to be a huge media effect to the consumer confidence survey and it would not surprise me if it is short lived meaning that three days after the survey is taken the information no longer reflects how the consumer is thinking. Seems the government relies on too many surveys instead of looking at more objective measures. They rely on surveys for people working too instead of looking at tax collections or working with firms like ADP.
At this point in the cycle, the Fed needs to raise rates in order to have dry powder for the next downturn.
High consumer confidence gives the Fed cover to raise rates.
I was thinking the same thing. Is the market correction due to Fed raises following highs in a number they pay a lot of attention to, or to confidence itself?
Man, what a bloody mess! It’s insulting to think grown men are sitting around pondering such nonsense. Solely on account of the rackets making engaging it that sort of waste, more individually lucrative than bothering with the hard work of doing something actually productive.
Didn’t some dude call this “animal spirits”?
Herd them into the pen, boys. Then let the slaughter begin.
Consumer confidence might mean something if it were somewhat stable, but with the wild swings we see, it more closely resembles a manic depressive. I think due to the divisiveness and massive imbalances of our economy and society, we, as a society and possibly a world, are mentally unhinged, damaged, and deliberately so.
The ONLY value in these charts is to demonstrate our fragile footings…something we can see in actual financial analysis, but manifested in our actual schizophrenic perceptions. Once we abandon a rational mind, we become so much easier to manipulate, especially if your desire is destruction. Animal spirits indeed.
Did someone say “herding”?
…
“Huge inflows into U.S. equity ETFs―and one ETF in particular―pushed weekly inflows to a monster $23.5 billion. The SPDR S&P 500 ETF (SPY) alone pulled in $12.6 billion in the week ending Thursday, March 2, according to FactSet. The latest wave of cash into ETFs means that year-to-date inflows now stand at a stunning $101.7 billion.”
http://www.etf.com/sections/weekly-etf-flows/weekly-etf-flows-2017-03-02-2017-02-24
Point on consumer confidence and S&P returns understood. Why don’t you also show a chart that debunks correlation between consumer confidence and spending?
Instead of asking people how confident they are in the economy, ask them if they plan any major purchases in the next three months like a house or a car or even a major appliance. That is a truer measure of consumer confidence that they feel they can pay for it.
surely there are better ways than asking if a person is intending to make a home purchase such as mortgage per-approvals or people checking their old car trade in value on various sites.
That might make sense but I question whether we do actually purchase in a direct relation to our “confidence”. How many are buying into the stock market right now, not due to any confidence in the economy but because they are being herded into it due to lack of any other alternatives to preserve wealth? How many are making purchases not due to confidence in our economy but because they fear inflation and will simply but to front run that…or is inflation a positive for the economy? For me, inflation is as positive for our economy as any other Keynesian disaster…or broken window, simply frightening people into consumption rather than anything perceived as normally healthy or positive.
Economic series #154989 and #154999 and any other random one. Downs follow Ups — or is it the other way around? As my recent Uber (or was it Left) driver said, “correlation ain’t causation”.
🙂
But it’s still a correlation, right? A “sign” may not be causal, but it still can inform.
Confidence surveys can hardly matter at all. The US economy has been growing at between 2% and 3% nominally over the last 10 years. Seen as Hussman is a 10 year performance kind of guy, although i have never seen a worse investment performance track record in my life… and i have been around too long. Multi millionaire Ivy league PHD’s have special dispensation of course.
The Fed numbers (revised and revised) show us all we need to know : Retail sales, corporate earnings, GDP, Nominal household income growth, total employee compensation, total debt, etc. 2006-2016 growth at nominal 2%-3%. As predictable as grandfather’s clock sitting on the shelf.
Brilliant post. +1