Friday, June 25, 2010

Rising consumer confidence is a good sign


Consumer confidence is anything but a reliable leading indicator of the economy's health, but this time it may be. That it is still relatively low from an historical perspective simply reflects the fact that we've through a pretty rough recession. Confidence was deeply shaken, and it takes time to rebuild. Recessions typically happen when everyone is very confident, because then the unforeseen can be terribly disruptive. But now most folks are still looking cautiously around every corner and under every rock, worried that the unforeseen may strike again. This is quite normal and consistent with the early stages of just about every recovery. That confidence has been slowly rising for the past year is more encouraging this time around, since the latest recession was all about a huge shock to confidence (i.e., widespread fears of a global financial meltdown), so as confidence returns, money that was socked away under mattresses gets gradually spent, and that helps economic activity recover. We are in the midst of a virtuous circle, where rising confidence boosts spending, rising spending boosts production, and rising production boosts confidence, etc.

9 comments:

brodero said...

The Corporate profits numbers were very impressive...Nominal GDP was revised down 9 billion but corporate profits after tax were revised up 32 billion

Scott Grannis said...

What measure are you looking at? The one I follow was revised down $9 billion

http://research.stlouisfed.org/fred2/data/CPATAX.txt

brodero said...

I saw it in the BEA report for Corporate profits....Table 11 row
I-14.....please correct me if i am
wrong....

brodero said...

Also Scott if i am looking at it correctly it looks like the after
tax number is the highest in history.....

Scott Grannis said...

Sorry about the confusion, I was comparing the new number to the wrong old number. Profits were indeed revised up $32 billion, and now stand at 7.96% of GDP, a very strong figure.

brodero said...

Thanks for the confirmation..I am
an old bond trader so it is helpful when a trained economist can confirm my observation.....

Benjamin said...

Let's hope the virtuous cycle continues. Productivity is up and unit labor labor costs are down, so there is real good news out there....corporate profits hitting records, is good too.

Ralf Graute said...

Dear Sir,

I apologize for asking, but the data in your graph doesn't seem to correspond to the numbers issued by the Conference Board? Or am I wrong somewhere?

Kind regards

Ralf

Scott Grannis said...

This measure of confidence comes from the University of Michigan, not the Conference Board.