The headline is: "Consumer Confidence Blows Past
Expectations."
Finance.Yahoo.com reported that the University of Michigan's Consumer Confidence Index "surged"
to 78.1 in December (but still below its level before the 2008 financial
meltdown).
Is this good news?
Well, of course it's good
news—"consumer sentiment" got better.
But what does it mean,
y'know, economically, consumer behavior-wise, what "surged? Who knows….
First, keep in mind that the
Consumer Confidence Index is based on survey data, so, technically, we really don't know what it means because no
survey produces valid, precisely accurate data. Every survey produces some kind
of data, and repeated surveys (done by professionals) can nominally illuminate
trend changes, but I don't give surveys much more credit than that.
When is the last time you sat
still to answer a telephone interviewer's questions? Besides the decline of public willingness to participate, all
publicly reported surveys are cooked by arbitrary respondent
selection/screening procedures, sloppy question design (both wording and
sequence) and “statistical weighting” of the data, which is the wonk way of
correcting for all the other failures to reach a “true random sample.”
By the way, a "true random sample" means, technically, “every
member of the population which is to be represented by the survey results must
have an equal opportunity to be explicitly questioned and must actually
participate if asked.” No public survey achieves this basic requirement, so we
don't really know whether most survey data really reflects the opinions and
behavior of the people who are supposed to be represented.
And here's another thing: statisticians have confirmed that the
Consumer Confidence Index in the last 35 years has had only a 4.5% correlation
with the government's monthly index of Personal Consumption Expenditures—the PCE
measures actual consumer spending, and you'd guess that more consumer confidence would match up pretty well with more consumer spending. Well, it doesn't.
A correlation
of 100% would mean that increases or decreases in confidence are consistently, proportionally and directionally
related to increases or decreases in spending—if
one goes up, the other goes up, and vice versa. A correlation of zero would mean there is absolutely no
relationship between changes in one index and changes in the other one. A
correlation of 4.5 is pretty close to zero….
So, changes in the Consumer Confidence Index do not indicate that
similar changes are occurring in the Personal Consumption index. So, there is
no economically useful interpretation of what those changes in consumer
confidence really mean.
What does the December CCI report really tell us? Something "surged." What was it?
Your guess is as good as mine.
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