Tuesday, June 30, 2009

On the Decline in Consumer Confidence

The Conference Board Consumer Confidence Index, which had improved considerably in May, retreated in June. The Index now stands at 49.3 (1985=100), down from 54.8 in May. The Present Situation Index decreased to 24.8 from 29.7. The Expectations Index declined to 65.5 from 71.5 in May.

The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. It is considered a leading indicator. I see it more as a late leader or an early concurrent, mostly because I don't buy the Keynesian theory behind it as a leading indicator, and see it more as reflecting current conditions. That said, the current dramatic drop leads one to ask what is going on in the economy that there has been such a swing in household views on the economy? If Bernanke was still pumping money at double digit rates, I would blow this dip off as possibly one month of statistical noise. However, with Fed tightening, I am leaning toward considering it as more significant and signalling that Bernanke's recent money growth slowdown is having an impact in the hinterland.

This suggests more negative shocks. in the not too distant future, across the economy.

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