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Why "Consumer Confidence" Is The Most Manipulated Economic Indicator

Tyler Durden's picture




 

The propaganda machine's favorite subversive mechanism to instill confidence in the prevalent population, is by nudging none other than the Confidence Index itself. And indeed, over the past few months, the Conference Board and UMichigan indices have been on a straight upward slope. What better way to get Joe and Jane Sixpack out to the mall to spend, than to give them the impression that all their neighbors are out, doing just that (and buying 5 iPads in the process). Don't forget the US economy is based on reckless spending and credit, and the Sixpacks love that, especially if they don't have to pay their mortgage ever again (as Obama told them to do). Yet the Consumer Index is nothing but just another massive scam. To wit: observe the ABC Consumer Comfort index, a representation of consumer "confidence" which according to many is much more detailed, due to its larger sampling size, and more up to date, due to its weekly updates, yet one which, refusing to drink the Kool Aid has never once been mentioned on the biggest propaganda channel of all, CNBC. Yesterday, the latest ABC numbers came out, and they were a stunner: at -49, the index is barely a few points away from all time record lows, and well into deep recession territory. In fact, the only confidence consumers can have, is that there is absolutely nothing predictive about the CONsumer indices out there: the spread between the ABC and the administration darling's Conference Board just hit a record high, as see on the chart below. In fact, it has gotten so difficult to sway popular opinions with these simplistic methods of subliminal control, that even Goldman Sachs is concerned about the utility of such indices going forward. Goldman's Jan Hatzius, in discussing Consumer Confidence, notes: "Since the monthly spending figures are noisy estimates of the true underlying trend, it does make sense to put some weight on confidence alongside actual spending when trying to gauge the outlook for consumption.  This still points to a U-shaped rather than V-shaped recovery in spending." If after reading this, you still think that consumer indices are indicative of anything at all you probably were one of those who did buy 5 iPads over the past month.

First, we present the record divergence between the Conference Board and the ABC Consumer Comfort index:

As we said: mere propaganda. But don't take our word for it: here is Goldman's very own Jan Hatzius:

Which Way for Consumer Confidence? (Hatzius)
 
•         The April consumer confidence report from the Conference Board came in ahead of expectations, rising to the highest level since September 2008.  However, other, alternative measures of confidence—the University of Michigan index and the ACS/Washington Post index—have fallen this month.  So is confidence rising or falling?
 
•         A statistical “principal components” analysis of these three confidence indexes finds a small decline in confidence in April relative to March.  Over a longer period, confidence has been essentially unchanged since last September, though it is up substantially from the lows of late 2008 and early 2009.
 
•         There are at least two possible explanations for the gap between healthy spending growth and still-sluggish confidence.  First, the weight of higher-income consumers—who seem to be doing considerably better recently—is larger in the spending figures than in the confidence indexes.  Second, and nevertheless, the confidence data suggest that the rebound in spending is still likely to be U-shaped rather than V-shaped.
 
Today’s April consumer confidence report from the Conference Board came in ahead of expectations.  The overall index rose 5.4 points to 57.9, the highest level since September 2008, with present conditions up 3.4 points and expectations up 7 points.  Does this mean that the consumer has turned the corner?
 
There are certainly a number of encouraging signs.  Most importantly, the consumer spending data themselves have significantly beaten expectations in recent months.  In the first quarter as a whole, we estimate that real consumption rose 3¾% (annualized), and this follows better-than-expected data in both the third and fourth quarter of 2010.  Similarly, more bottom-up indications from retail companies and consumer-exposed financials have also been looking significantly firmer.
 
However, the verdict on the consumer confidence data themselves is still considerably more equivocal.  This is not just because the Conference Board data are noisy—after all, two months ago the question was how much weight we should put on the sharp 10.1-point decline in the index from January to February.  And it is not just because confidence is still far below the long-term average of 96.  It is also because the pickup in the Conference Board measure is at odds with other measures of the consumer’s mood.  The (preliminary) consumer sentiment index from the University of Michigan dropped 4.1 points in April from March’s final reading, and the monthly average of the weekly ABC/Washington Post index edged down 2.0 points as well.
 
So which indicator should we believe?  Since most economic indicators are a noisy estimate of the underlying reality, it typically makes sense to put some weight on each measure.  In order to do this, we have performed a “principal components analysis” of the three indicators.  The “first principal component” is the data series that best represents the variation over time in all three of our indicators over time, and we can therefore think of it as an optimal combination of the information contained in all three series.
 
The table below shows all three series plus the first principal component from our analysis.  The principal component series currently stands at -2.7, above the lows seen in late 2008 and early 2009 but basically unchanged since last September and still at a very low level in absolute terms (similar to the trough of the recession of the early 1990s).

Alternative Measures of Consumer
Confidence

 

 

Conference Board

U Michigan

ABC/WaPo

1st Principal Component

2008 - Jan

87.3

78.4

-24

-1.0

2008 - Feb

76.4

70.8

-36

-2.0

2008 - Mar

65.9

69.5

-31

-2.1

2008 - Apr

62.8

62.6

-39

-2.7

2008 - May

58.1

59.8

-48

-3.2

2008 - Jun

51.0

56.4

-44

-3.4

2008 - Jul

51.9

61.2

-43

-3.1

2008 - Aug

58.5

63.0

-49

-3.1

2008 - Sep

61.4

70.3

-43

-2.5

2008 - Oct

38.8

57.6

-48

-3.7

2008 - Nov

44.7

55.3

-52

-3.8

2008 - Dec

38.6

60.1

-50

-3.7

2009 - Jan

37.4

61.2

-51

-3.7

2009 - Feb

25.3

56.3

-50

-4.2

2009 - Mar

26.9

57.3

-48

-4.1

2009 - Apr

40.8

65.1

-48

-3.4

2009 - May

54.8

68.7

-45

-2.8

2009 - Jun

49.3

70.8

-50

-2.9

2009 - Jul

47.4

66.0

-50

-3.2

2009 - Aug

54.5

65.7

-46

-3.0

2009 - Sep

53.4

73.5

-47

-2.6

2009 - Oct

48.7

70.6

-49

-2.9

2009 - Nov

50.6

67.4

-46

-3.0

2009 - Dec

53.6

72.5

-45

-2.6

2010 - Jan

56.5

74.4

-47

-2.5

2010 - Feb

46.4

73.6

-49

-2.8

2010 - Mar

52.3

73.6

-45

-2.6

2010 - Apr

57.9

69.5

-47

-2.7

 

 Source:
Haver Analytics.

So which indicator should we believe?  Since most economic indicators are a noisy estimate of the underlying reality, it typically makes sense to put some weight on each measure.  In order to do this, we have performed a “principal components analysis” of the three indicators.  The “first principal component” is the data series that best represents the variation over time in all three of our indicators over time, and we can therefore think of it as an optimal combination of the information contained in all three series.
 
The table below shows all three series plus the first principal component from our analysis.  The principal component series currently stands at -2.7, above the lows seen in late 2008 and early 2009 but basically unchanged since last September and still at a very low level in absolute terms (similar to the trough of the recession of the early 1990s).

 

 

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Wed, 04/28/2010 - 17:05 | 322682 B9K9
B9K9's picture

The only report that counts is the Z1. That being said, if more people were aware of how our credit-money system actually works, the Z1 would be amongst the first reports to be 'disappeared'. Short primer for new readers:

  • New credit must continuously be demanded/created by continual economic growth in order to service the accruing principle+interest incurred on previous debt encumbrances.
  • Since compounding principle+interest is a function of basic exponential math, economic growth must also follow a similar exponential growth rate in order to merely maintain a relative position. (Hence, running the proverbial hamster wheel while desperately trying to 'get ahead'.)

Questions:

How is exponential economic growth to be achieved when the primary driver (fossil fuels) represents a finite resource?

Are there alternatives to energy driven growth? Sure, we could engage in genetic engineering in order to halve our caloric intake requirements, or apply the same principles to radically increasing the caloric output of, um, edible sludge. All of these options are possible, but I don't think many people are willing to consider what it's gonna take.

If we can't achieve exponential economic growth, what happens to the underlying credit-money system (ie deflation)?

Now do you see why the PTB are running roughshod over all existing constitutional principles? Don't think the DoD knows what's goin' down? That's why the veil of legitimacy is off and the US stands nakedly as a rapacious empire willing to do anything to maintain its last vestiges of prestige & power.

Wed, 04/28/2010 - 17:26 | 322725 cougar_w
cougar_w's picture

It's a riff on the addage that whoever dies with the most toys, wins. Only this time it might be fact.

I have no idea how this is going to end. The imagination fails, and I have a very potent imagination.

What do you do when the gears stop turning?

 

Wed, 04/28/2010 - 17:06 | 322688 AnonymousMonetarist
AnonymousMonetarist's picture

Here's the answer from this morning's King Report:

 

Consumer confidence, as measured by the Confidence Board, increased to 57.9 in April, the highest level

since 2008. We told you we are back to 2008!

The reason for the discrepancy in consumer confidence surveys is the Confidence Board surveys future

expectations, which soared in April to 77.6 from 70.4. Present situations increased to 28.6 from 25.2.

But this ‘confidence’ is mostly build on the expectations of the inexperienced.

Confidence by age:

Under 35    70.1

35-54         57.2

55 and over 52.6

 

Wed, 04/28/2010 - 17:07 | 322694 Debtless
Debtless's picture

we'll be eating one another soon. index that.

Thu, 04/29/2010 - 00:27 | 323170 RockyRacoon
RockyRacoon's picture

Donner, party of 32!   Your table is ready.

Thu, 04/29/2010 - 01:56 | 323232 jeff montanye
jeff montanye's picture

well played.

Wed, 04/28/2010 - 17:32 | 322733 cougar_w
cougar_w's picture

The stupid people are always confident, and what choice do they have? God will provide, or else everyone dies and goes to heaven.

The smart people do not trust in God or TPTB and are quietly heading for the hills, voting with their feet, and not disclosing their actual plans.

The race as ever will go to the swift. There can be no long-term plans nor crafty strategies for there are no signals. At the end of the world all you get is random noise. Keep that in mind. And keep moving.

Wed, 04/28/2010 - 20:33 | 322944 jdrose1985
jdrose1985's picture

I do trust in God and I'm headed for the hills anyways. To believe God has any interest in bailing us out of our overconsumption and self absorption is beyond childish and pathetic.

God helps those who helps themself. Agreed, the race will go to the swift. However, the wise man and the fool suffer the same fate. This too is meaningless and a chasing after the wind.

Wed, 04/28/2010 - 17:39 | 322743 tobot
tobot's picture

FYI - your comment about the divergin spread is actually very misleading. If you look at the spread between the two going back to 1990, the mean is 108.231, median is 109.5  vs the current spread of 97.3. The spread between the two has only widened significantly relative to the all time low of 73.3 which occured at the end of Feb 2009.

You may be right about the numbers beinf manipulated, but you're way off on their relative spread between the two.

also fyi, the last time the ABC index was materially in positive territory was in 2000-2001 when it reached a high of 34 on 09/04/00.

Wed, 04/28/2010 - 17:51 | 322749 Racer
Racer's picture

And how many people are these CONfidence figures based on?

If you look into the actual numbers they are miniscule for some of them

UoM 500 telephone interviews

 

Ring ring...

hello how are you today..

...terrible..

sorry to bother you, goodbye

(repeat as many times as it takes, without counting of course)

 

ring ring..

hello how are you today..

brilliant I have been looking for a job for a year and I found one at long last

oh brilliant, well done, would you mind if I asked you some questions..

no problem, I feel so happy today...

 

Wed, 04/28/2010 - 17:56 | 322773 Crime of the Century
Crime of the Century's picture

If after reading this, you still think that consumer indices are indicative of anything at all you probably were one of those who did buy 5 iPads over the past month

He's lookin' at you, Harry...

Wed, 04/28/2010 - 18:13 | 322789 omi
omi's picture

What variability is accounted by the 1st component?

and how many components are needed to get 95%?

Since I'm too lazy to calculate things by myself, what are the eigenvectors?

This voodoo reads like so to get the right location we mix some honey, guitar picks and hockey pucks.

Wed, 04/28/2010 - 19:49 | 322897 Racer
Racer's picture

And these fuzzy figures are also used in the leading indicator figures which conveniently also use stock prices!!!!!

and if you also fiddle the figures about unemployment you get even more fuzz

 

can we have a poll about how accurate the government statistics are? ...my guess...

Wed, 04/28/2010 - 21:16 | 322973 anarkst
anarkst's picture

I see an awful lot of people in my business and I have not talked to anybody who is in the least bit positive.  People may be stupid, but nobody is THAT stupid!

Wed, 04/28/2010 - 21:41 | 322994 yipcarl
yipcarl's picture

My question is this.  What isn't a lie?  AND people ask me why I'm pissed. 

 

I don't like to be cyncical but what choice do I have? 

 

I guess lalalalalala...lots of drugs, lalalalalala

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