Home > XE Currency Blog > Americans gaining confidence in the economy

AD

XE Currency Blog

Topics6755 Posts6800
By New_Deal_democrat December 17, 2014 1:18 pm
  • XE Contributor
New_Deal_democrat's picture
New_Deal_democrat Posts: 547
Americans gaining confidence in the economy

While many commentators pooh-pooh consumer sentiment surveys, the fact is that the "future expectations" of those surveys have been shown to lead economic performance, and they are included as one of the 10 components of the Index of Leading Indicators.

So the trend in consumer sentiment surveys over the last few months is heartening on several levels - and it is not just one survey, it is all of the well-known surveys.

Here is the University of Michigan consumer confidence survey:

And here is the Conference Board's similar survey:

And here is Gallup's "economic confidence" survey:

All three of these have surged in the last 3 months.  All are approaching their best levels from the 2002- 02 expansion, and the "current conditions" readings aren't far from their levels during the 1990s tech boom.

Reuters reports that:
When asked in the survey about recent economic developments, more consumers volunteered good news than bad news than in any month since 1984, said the poll's director, Richard Curtin.
.....
Overall, the sentiment index rose to a higher-than-expected 93.8, mirroring levels seen in boom years like 1996 and 2004.
The best part is that the biggest increase in optimism comes from the lowest 1/3 of households measured by income:

It's not too difficult to believe that lower gas prices and consistent job gains of over 200,000 a month, with unemployment under 6%, are finally having an effect.  (for a similar analysis, see Prof. Tim Duy.)
-----------
P.S.:  Just for giggles, and to point out a common mistake I see in lots of analysis, here is the take of Doomer site The Automatic Earth ("Consistently Wrong since 2009!!!") on the Reuters article:
Americans are not just behind the curve, they positively confirm a top has been reached. If ever you needed a sign, here it is: “Their expectations run quite counter to recent price data.” That’s from Jason Lange for Reuters....
.... [quoting similarly from Reuters article above]
I think maybe I should just leave it at this. The American consumer has spoken, and (s)he’s called a top. Whether that’s just the top in consumer sentiment or also one in the stock markets, let’s see, but I lean towards thinking both is a realistic option, because of the way energy credit fell to pieces in no time. It looks like a harbinger for a – much – wider segment of the economy ...
The thesis of The Automatic Earth is that, since these readings are the best in decades by some measures, therefore it is a top.

But they never follow through on their thought process.  Was 1966 a top?  Was 1984 a top?  Was 2004 a top?  Maybe so for consumer sentiment readings, but in each case the economic expansion had years to go - to 1969, 1990, and 2007, respectively.  And only 1966 marked a stock market top.  If anything, the similarity to 1966, 1984, and 2004 suggests a mid-cycle indicator for economic expansion.

I see this kind of mistake time and time again.  You should always look for similar patterns from the past, and then ask yourself what happened following that moment in time.  It will save you from a lot of poor analysis.

Paste link in email or IM