Consumer Confidence: Behind Those Happy Numbers

The stock market surged Tuesday after a big jump in consumer confidence, despite word of a 19.1 percent drop in housing prices over the past year and a jobless rate likely to surpass that of Europe. Who are those confident consumers, and why are they jumping?

Consumer confidence is a number measured by the Conference Board, a nonprofit that bases its data on a survey of 5,000 U.S. households. The confidence measure is based on consumers' answers to five questions on current business and employment conditions and expected conditions six months down the road. Confidence rose from 40.8 to 59.4 in April. The benchmark number for consumer confidence, set in 1985, is 100.

The April gains were carried by future expectations, which jumped from 51 to over 72, whereas respondents put current conditions at 28.9, up from 25.5 last month.

Dean Baker, co-director of the Center for Economic and Policy Research, is skeptical that the sunny expectations index carries much significance.

"This jumps all over the place and is almost meaningless," said Baker in an email to the Huffington Post. "This is no doubt being driven by the happy talk in the media pronouncing the recession over." Baker said the current conditions index, which "does reasonably well reflect current consumption patterns," is "still at an extremely low level."

In an interview with the Huffington Post, the Conference Board's Lynn Franco confirmed that consumers report "sharp increases in expectations as the recession seems behind them."

But Franco cautioned that even though "the worst may be behind us," positive expectations don't mean consumer spending is about to power the economy forward. "Consumers, in spending terms, are still facing a lot of headwind," Franco said.

The graph below, provided by the Conference Board, shows how consumers' expectations and assessments of current conditions tend to diverge and fluctuate when the economy hits a trough.

The Economic Policy Institute's Larry Mishel told the Huffington Post that bad times will continue, with "high and prolonged unemployment that's going to have a tremendous amount of hurt."

Comments

[cruisepuppy7452a]

Define consumer confidence exactly. I do not see what they describe, to the contrary. I do not see people going out, buying new houses, cars, things. I see more people in unemployment lines, praying thier states allow them to go on food stamps, federal aide, at garage sales. That is what I see. I see no big ticket items leaving stores, I see people at Wal mart, shopping for the basics. I would like to sit down with these so called experts who say they see something else. My question is this, what are they smoking or drinking? I see families working 2-3 jobs just to make ends meet and still having to rely on family to baby sit, college if you can afford it, is a pipe dream to many and healthcare? Are they kidding? No co chise, I don't think the economy is any better now than before and confidence is at an all time low.

[NCYvonne]

Of course, consumer confidence doesn't mean anything according to HP. That would signal that there are bright spots in the economy and that's a bad thing since Krugman says Obama's plans will fail and we'll be in a depression for the next 10 years.

Krugman knows all.

[MissingAmerica]

The banks and credit card companies are ripping us off with fees and interest in the stratosphere while claiming this as impressive income as they tell the government they're getting back on solid ground. They are! They're walking on our broken backs! Meanwhile, the auto industry which employed thousands and are our last vestige of employment are being allowed to go under or be more or less outsourced. The ownership of a house is out of the question for the younger people and they are busting their humps and sacrificing to pay into a system supporting many who can no longer work. Those working poor are in the minority these days, as most can't find work. The seniors are concerned about Social Security and millions are sick and/or dying because they can't afford healthcare.

The other night I noticed a program on the 12/21/2012 deadline which theologians deem to be the end of the world. When that news is taken more easily than the news of our current state of this union, I'd say confidence is pretty much shot! So, yes, the numbers mean nothing!

[factotem]

The basic banking problem has not even been addressed yet. It's 5 months later and the banks are still not extending credit to businesses. Until this changes, we are still screwed.

[RoveRoveRoveYourBoat]

The banks are not our economy.
They are currently our nemisis.
...until there are trade tarriffs,
US made content laws,
and tax incentives for US manufacture
by US owned small to medium sized buisness,
we are screwed.
Without enforcement of the regulations put in place 75-years ago,
unregulated capitalism will continue to self-destruct.

[We-Are-The-Ones]

It is amazing how progress is denigrated. When Consumer Confidence was law, that was a big scary thing. Now that it is up, it is irrelevant.

Same with the Dow, when it was going down, not only was it Obama's fault but it was precursor to the apocalypse. Now that it it stabilizing and going up more days than not, Obama does not get the credit and it is ignored.

Hypocrisy.

[RoveRoveRoveYourBoat]

...hope you can eat those
new clothes in a few months.
...save the bags for your belongings.

[gcallaghan]

The recession will be over when consumers spend less than they earn, but not so much less that it doesn't pay to produce goods. When everybody's working, that difference can be substantial - 10 to 15% between what they earn and what they save. While massive numbers are unemployed or underemployed - regardless of how they're tallied on DOL statistical sheets, if they live in the US and are out of work and wish to work then they should count as unemployed - the recession will still drag on.

The Bush years saw millions of good paying skilled jobs go to overseas workers only to be replaced with bigbox-clerking and coffee shop bartending jobs. Those corporations which pocketed the windfalls from the cheaper production costs ought to be on the hook for pulling us out of this mess.

[jane gutowski]

The happy consumers dont realize the Dems are planning to pass anational tax on all goods at 25% like they do in Europe to help pay for all these nationalized services like health care.

[rsprags]

What have you country destroying repurgs come up with for healthcare, education, and energy reform? Nothing just keep making these countries that hate us rich with our dependence on oil and paying more for the worse healthcare of all countries and an educational system that seem like we are at the bottom.

[MassInsanity]

Are you referring to the VAT?? Cause they were passing around figures of 10%, but stated it's highly unlikely they would go that route in the first place...

Stop making things up, or at least provide a link...

[Mildmannered]

I agree

[ImmanuelGoldstein]

My reaction to the increased consumer confidence was that somebody was smoking those 'green shoots'.
Just what was the basis for it except sheer propaganda?
Was the bleeding of jobs stopped? (Not just slowing down but stopped) NO.
We we going back to sending a credit card to anyone with a pulse? NO.
Are housing prices going back to anywhere near where they were 2 years ago? NO.
Are we going to borrow another trillion from the Chinese to buy flatscreens and SUVs NO.
Are we going to create another trillion of home equity withdrawal funny money? NO.
Can anybody give me ANY reason to think this was based on anything real except wishfull thinking? NO, NO, NO.,

[bwshook]

I believe it amounts to a well-coordinated broadcast throughout the media that the recession is ending in '09 that is the basis for consumer confidence at the moment. No one is publically broadcasting the true overall depth or length of time the recession will last. But that's human nature: paint a pretty picture over the one that stinks. I think I'm going to "hunker-down" for the long haul!

[samilli3]

5000? they should survey 100,000 households­......

[Social Construct]

" .... The sun will come out tomorrow .... "
My conspiracy theory brain wants to say this is a corporate America attempt to paint wishful thinking as a reality in order to get the lemmings spending again. However, my realist pragmatic brain says it's more blind optimism.
Because I am more entertained by pondering the romance and mystery of human behavior, I choose the conspiracy this time. Plus it'd make a great suspense novel.