- Bloomberg.com – Consumer Sentiment in U.S. Unexpectedly Surges to 13-Year High
U.S. consumer sentiment unexpectedly surged to a 13-year high as Americans’ perceptions of the economy and their own finances rebounded following several major hurricanes, a University of Michigan survey showed Friday.
Comment
The horizontal blue line above shows the 13-year high in consumer confidence. Stocks are also at a hew high. As the bottom panel shows, the correlation between the two is very high.
As we explained last year:
Respondents don’t really know how to answer such abstract questions as business and employment conditions, so they describe what they think is the ultimate economic indicator, the stock market’s recent movements. While spikes in gas prices or other economic events (i.e., 9/11, “The Great Recession”) will supersede this method at times, most of the time the stock market is used to formulate answers to the above questions. Given the stock market’s rise since 2009, it should not be a surprise that consumer confidence is up over the same period.
Since we do not need an indicator to highlight recent stock market performance, the Consumer Confidence Index becomes rather useless as an economic indicator. If it measures nothing more than recent stock market performance, economists should not be puzzled by the lack of a relationship between something like retail sales and consumer confidence.
So why is consumer confidence at a 13-year high? It may be as simple as the stock market being at an all-time high.