Consumer Confidence and the Effect on the Economy

Many economists predict that the US economy is ready for a turnaround.  After three months of positive growth in the real GDP, all signs seem to point to this. However, consumers are still not on the same page as economists.  The Confidence Board, a private research group, released today a report that their consumer confidence rating had dropped from December to January, respectively at 64.8 to 61.1.  Many different reports have stated the reasoning behind this drop. 

The Wall Street Journal pointed out the sheer evidence of the report: consumer confidence is down because of the lack of finding jobs and the levels of expected income in the near future.  From December to January, there were 75,000 fewer jobs created. 

Along with this, Financial Times reports that housing prices continue to drop, which counters the benefits of growth in real GDP.  Consumers have also seen the prices of gas rise, another crippling effect that surely hinders the amount of disposable income for consumers. 

NASDAQ reports that DOW was going to have their best January ever until a shock in the stock market occurred over the consumer confidence rating.  Even through this, DOW has seen their best January since 1997, so those in the financial industry should still feel some excitement towards investor confidence.

The consumer confidence rating is out of 100 and is pegged to the year 1985.  Many economists had predicted that the rating would have risen from 64.8 to 68 this month, but as stated above, complications aren’t unheard of in the financial industry.

I find that the consumer confidence rating for January is supporting many of the beliefs that economists have had in recent weeks.  While everything looks good and grand with the real GDP growth in the United States, the economy is still far from being at the level that it should be.  The biggest indicators after reading these reports seem to be within the labor market, housing market and fuel prices.  Since these three markets have such a substantial effect on nearly every American, consumers are able to pin the success of the economy on these factors.  Until positive results can be seen in these markets, consumer confidence will lean unpredictable to negative growth rates.   

References:

1. Bond, Shannon. "Jobs and Fuel Prices Weigh on US Confidence". Financial Times. http://www.ft.com/cms/s/0/81cc9264-4c18-11e1-b1b5-00144feabdc0.html#axzz1l4fTe7lo
2. Dieterich, Chris. "US Stocks Fall After Weak Consumer Confidence Report". NASDAQ.  http://www.ft.com/cms/s/0/81cc9264-4c18-11e1-b1b5-00144feabdc0.html#axzz1l4fTe7lo
3. Madigan, Kathleen. "Consumer Confidence Unexpectedly Declines". Wall Street Journal.  http://blogs.wsj.com/economics/2012/01/31/consumer-confidence-unexpectedly-declines/