The Consumer Confidence Index - You Can Fool Some People Sometimes

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The Consumer Confidence Index - You Can Fool Some People Sometimes

October 4th, 2006

October 4, 2006 -

Here is the graph for the Consumer Confidence Index in the U.S. (Source: Conference Board). Basically the CCI takes a representative sample of 5,000 households in the United States (which by the way, is an enormously tiny sample for a population of 300 million) and asks them how they feel about the state of the economy, with a particular emphasis on the job market and business conditions. Furthermore, the index is weighted more heavily (60%) regarding future expectations than current conditions (40%). I’m actually going to keep my blog today quite short because I think that the CCI is basically worthless, but since the media pays so much attention to it, and markets likewise inexplicably seem to be moved on the subjective opinions of a miniscule, microscopic sample of a nation’s population, I’ll give you my two cents about it.

The main reason most analysts believe that consumer confidence shot up in September was due to falling gas prices. If you read my blog entry dated September 25^th here, you’ll see that I believe that falling gas prices were artificially manufactured by Goldman Sachs (by the way, five days after my post, the New York Times also ran a story on September 30^th addressing the points I had raised in my September 25^th blog). So if consumer confidence rises on artificially induced manipulation of gas prices and the unleaded gas markets, what do they mean? Absolutely nothing. In fact, if the Conference Board interviewed me, my answers regarding my future expectations would be so negative and so low that they wouldn’t even show up on the scale of the above chart.

2 Comments Add your own

1. Quentin | October 4th, 2006 at 9:24 pm

I’m new to these Personal Fnance BLOG world, but I certainly like to think about finance, saving and investment…and for the last few years, I have been interested in the “bubble” and consumer driven country we have actually always been through my life of 48 years.

I am not sure I fully agree with your assesment of consumer confidence….not because I think it is in fact very meaningful on the broader picture…but because I feel our gluttony of consumption is the very thing that has kept the economy afloat for the past 10 years or so….and I actually think that it is unfortunately currently one of the only “value adds” our country has in the world….when we lose that and become #2 or #3, they will not need us and they will not buy our government bonds so willingly…..

Without us now, the world economy would collapes….so the other countries need to buy our bonds to keep us solvent.

The tipping point will be our dropping from the #1 consumer spot….then we will either quickly slide, ot perhaps crash.

So the consumer confidence number is important…in so far as we have to keep our #1 status. (IMHO)

Sorry for the pessimism….I hope I’m all wet too!
2. J.S. | October 5th, 2006 at 9:02 am

Hi Quentin, Actually I share much of your pessimism when it comes to the U.S. markets despite the Dow reaching “all time highs” as the media likes to exclaim. I think of the high levels of consumer confidence right now as irrational exuberance.
-J.S.