The Conference Board’s Consumer Confidence Index, after improving in January, dipped in February. The Index now stands at 104.0 (1985=100), down from 105.1 in January. The Present Situation Index increased to 116.4 from 112.1. The Expectations Index, however, declined to 95.7 from 100.4 last month...
“Although expectations cooled this month, consumers are more optimistic today than they were a year ago,” says Lynn Franco, Director of The Conference Board’s Consumer Research Center. “Just as important, consumer confidence about current economic conditions, including the labor market, continues to gather momentum. Despite recent fluctuations, both present and future indicators point toward continued expansion in the months ahead.”
Not quite as gloomy sounding as the news from the University of Michigan's reading for February, but not a sign that people are feeling all warm and fuzzy.
Should we care about what these measures of consumer sentiment have to say? Here's some insight from Sydney Ludvigson, writing in last spring's edition the Journal of Economic Perspectives. (Follow her "Publications" link and look for the article "Consumer Confidence and Consumer Spending.")
... measures of consumer attitudes on their own have both statistically and economically significant predictive power for quarterly consumption growth, in a variety of expenditure categories.
But do they provide information over and above what we might divine from following stock prices, interest rates, labor-income, and the like? Ludvigson says yes, a little bit.
In summary, the results on the predictability of consumer attitudes for consumer spending are somewhat mixed. For total consumer expenditures, there is modest incremental information about the future path of spending in both the Michigan and Conference Board indexes, and including both surveys’ measure of expectations delivers fairly strong predictability of expenditure growth on goods (excluding motor vehicles). For other expenditure categories, however, the results are generally weaker, and for some categories of expenditure the inclusion of confidence indicators actually weakens the statistical relation between contemporaneous indicators and future consumer spending.
The good news, if any of you out there are students looking for a thesis topic, is that Professor Ludvigson has a suggestion.
In summary, to the extent that measures of consumer attitudes have genuine forecasting power for consumption, the explanation for such a relation remains unclear. Measures of consumer confidence do forecast future changes in labor earnings and non–stock market wealth, but measures of consumer attitudes appear to be directly related to future consumption growth, not just indirectly through their predictive power for household income or wealth... The question of why consumer attitudes help predict future consumption growth remains a puzzle.