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Consumers feel OK

By Sheyna Steiner · Bankrate.com
Tuesday, March 27, 2012
Posted: 2 pm ET

Today, the Consumer Confidence Index for the month of March was released by The Conference Board.

Guess what? Consumers feel pretty OK. The index is down slightly from last month, to 70.2, but that was expected after the big gain in February.

"The moderate decline was due solely to a less favorable short-term outlook, while consumers’ assessment of current conditions, on the other hand, continued to improve.  The Present Situation Index now stands at its highest level in three and a half years (61.1, Sept. 2008), suggesting that despite this month's dip in confidence, consumers feel the economy is not losing momentum," Lynn Franco, director of The Conference Board Research Center, said in a press release.

The benchmark for the index is 100 in 1985.

The Conference Board survey also found that inflation expectations rose in March in addition to the number of consumers planning on making a major purchase.

From the Marketwatch.com story, "U.S. consumer confidence dips in March":

At the same time, those with plans to buy an automobile within six months rose to 12 percent in March from 10.3 percent in February. Those planning to buy a home rose to 4.9 percent from 4.2 percent, while those planning to buy major appliances rose to 48.1 percent from 45.4 percent.

As the economy is powered by never-ending consumption of the populace (it is frequently said that consumer spending accounts for 70 percent of gross domestic product) one would think confident consumers would feel more comfortable making purchases and spending some of their disposable income rather than saving.

It turns out this is the case, at least to some degree,  according to a working paper from Stephane Dees, principal economist at the European Central Bank, and Pedro Soares Brinca at Stockholm University, "Consumer confidence as a predictor of consumption spending: Evidence for the United States and the Euro area."

The paper looked principally at the other big gauge of consumer attitudes about the economy, the University of Michigan Consumer Sentiment Index. Dees and Brinca concluded that large movements in the survey could predict consumer spending.

Overall, the results show that the consumer confidence index can be in certain circumstances a good predictor of consumption. In particular, out-of-sample evidence shows that the contribution of confidence in explaining consumption expenditures increases when household survey indicators feature large changes, so that confidence indicators can have some increasing predictive power during such episodes.

What do you think? Do you feel like spending money these days?

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2 Comments
Sheyna Steiner
March 28, 2012 at 3:24 pm

Thanks for reading and writing Mike!

Speaking of getting everyone back to work, I saw a story on Bloomberg today detailing a report from the NY Fed. According to the story the unemployment rate could be as low as 6 percent by the first half of 2013.

The story was called "Unemployment May Drop to 6% by Mid-2013, N.Y. Fed Study Finds."

Mike B
March 28, 2012 at 11:58 am

Thanks for bringing light to this idea: there is no stopping the American consumer. I was blown away last December by the ultra-positive retailer reports, and it doesn't seem that spending has slowed.

And this is without the free-flowing credit of yesteryear, and in spite of terrible unemployment rates. Just imagine if we can get everyone back to work! Happy days once more.

Great post!