IDEX Online Research: U.S. Consumer Confidence Is Down. So What?

If you are one of those merchants who anxiously awaits the monthly U.S. Consumer Confidence Index news release so you can make your sales plans, you’re wasting your time.  Consumer confidence trends won’t help you forecast your retail sales. 

Earlier this year, Dr. Dean Courshore, a professor in the University of Richmond (Richmond, Virginia USA) business school, published a paper titled “Do Consumer Confidence Indexes Help Forecast Consumer Spending In Real Time?”  Here’s the punch line of Professor Courshore’s paper: “The main finding is that the indexes of consumer confidence are not of significant value in forecasting consumer spending. In fact, in some cases, they make the forecasts significantly worse . . . .”  Professor Courshore uses complex mathematical equations to prove his point.  However, even the untrained eye can come to the same conclusion simply by observing the graph below.

Each month, Wall Street, some merchants, and especially the media breathlessly await consumer confidence figures.  If the numbers are weak, it often becomes a media frenzy.  While several organizations produce consumer confidence information, the two which most people read closely are those published the Conference Board and the University of Michigan.  Both organizations have been producing consumer confidence numbers for decades. 

The Conference Board publishes an especially detailed view of consumer confidence.  In addition to the measure of “Consumer Confidence,” it publishes an “Appraisal of Present Situation”, “Expectations for Six Months Hence”, “Plans to Buy Within Six Months”, and “Vacation Intended Within Six Months”.  Further, it gathers consumers’ opinions about the direction of interest rates (“higher”, “same”, or “lower”) and the direction of the stock market.  It classifies its responses from its 5,000 household sample by consumers’ income and age as well as by region of the country.

Despite all of this detailed information, however, the Conference Board is careful to avoid making any claims about trying to correlate any of this data with potential retail sales trends, voting trends, or other key consumer trends.  In fact, the Conference Board often uses the phrase “consumers claim . . .”. 

Professor Croushare is not the first academician to come to the conclusion that consumer confidence and consumer spending do not correlate.  Recently, Advertising Age magazine published a detailed two-page article titled “How consumer confidence provides a window into the overall economy.”  The conclusion:  “consumer confidence is an imprecise predictor of consumer spending, reflecting that spending is tied more to income than attitudes.” 

Is there a simple explanation for the apparent disconnect between Retail Sales trends and Consumer Confidence levels?  Given two facts – 1) Americans are born to shop; and 2) Americans generally attempt to be politically correct – the answer is predictable.  The Conference Board pollster shows up at a consumer’s home and asks the requisite questions about how the consumer feels.  When it comes to asking about the consumer’s buying intentions, the typical response is politically correct:  “I’m not going to the mall because I want to spend more time with my family.  Besides, I’m not going to buy stuff I really don’t need.”  The pollster dutifully notes the responses and exits the consumer’s home.  And, for giving such virtuous answers, the consumer rewards himself or herself with a trip to the shopping mall. 

There’s an old adage, “When the going gets tough, the tough go shopping.”  Shopping is a balm for many Americans.  When they feel bad, shopping helps them feel better.  When they feel good, shopping helps them feel even better. 

Shopping is a social and recreational experience.  Cottage Living magazine recently featured a headline on its cover, “Unwind and Shop.  We’ve planned your trip.” 

According to the Conference Board, consumer confidence is not the main driver of spending.  What dominates consumer spending is not consumer attitudes but consumer income, they say. 

After the tragic events of September 11, 2001, consumer surveys predicted the demise of America’s retailing sector as consumers claimed that their materialistic ways were history.  But 2001 Christmas sales pulled ahead by just over 1% despite a plunge in consumer confidence.  Further, consumer demand has remained solid in the ensuing years. 

The real answer to the disconnect between consumers’ wallets and their mouths relates to simple human nature; it is a variation of the old adage often spoken by parent to child: “Do as I say, don’t do as I do.”  Consumers of all ages act the same way:  they say one thing and do another.