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Are consumers really that worried?

Marketplace Staff Jun 29, 2010


Kai Ryssdal: We know if we look at the numbers that we’re enjoying some moderate economic growth.
Companies are building up production. They’re investing in new equipment. There’s some hiring going on. Take away the absolutes, though, the numbers and the economy just doesn’t feel that good. Consumer confidence took a tumble this month after three months when people seemed to be feeling better. As we’ve said, I don’t know how many times, consumer spending’s a key economic measure. How confident should we be in consumer confidence, though?

Jeff Horwich reports.

Jeff Horwich: The Consumer Confidence Index, this number that comes out at the end of each month, is a survey — 5,000 random people, asked how they feel about the economy. We all snap to attention, especially when it’s bad news. And with good reason, says Lynn Franco. She directs the survey for the Conference Board.

Lynn Franco: Consumer confidence gives us a very good read on the health of the U.S. economy, and consumers have been excellent predictors of recessions.

The logic is simple. Franco says apprehensive consumers don’t spend money. And to measure that level of apprehension, the survey relies heavily on one component: How worried consumers are about the job market.

Franco: Until the pace of job growth really picks up, it’s probably going to be a very bumpy road for confidence.

How worried should we be? Take it easy, says Lynn Reaser, president of the National Association for Business Economics.

Lynn Reaser: We do look at the consumer confidence indices, but actually, it is more important to see what consumers actually do as opposed to what they say.

Reaser says actual retail sales picked up in the early part of the year. Business spending still points to a modest recovery. Consumer confidence numbers also give the media something to talk about and that creates a kind of feedback loop.

Professor David Fan of the University of Minnesota looked at what was actually informing people who answered consumer confidence surveys.

David Fan: They are relying more on the press and news media coverage in general than they are about their own personal experiences.

So are we helping or hurting? Let’s see. One month ago, consumer confidence was up for the third straight month. Did we mention that on this show? Ah… no.

I’m Jeff Horwich for Marketplace.

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