Falling Consumer Confidence – A Self-Fulfilling Prophecy?
September 28, 2010 by Mr. ToughMoneyLove
Filed under Money and Behavior
Another report on consumer confidence has been released, indicating a drop to a seven month low. BTW – How in the world do you “forecast” consumer confidence?
I fail to understand the significance of “consumer confidence” data on a personal level. Maybe the pathetic politicians worried about re-election should take notice. Not me. I refuse to participate in confidence deficit analysis.
I suspect that reading reports that many other consumers lack confidence can be counter-productive in other ways, as in misery loves company. Collectively, those lacking confidence in their own future may look outward, expecting others to take the initiative to fix their financial problems.
One person’s lack of confidence may create an opportunity for someone else. That someone else should be me and you.
Here is the link if you like “how miserable are we” kind of stories.
Consumer Confidence in U.S. Fell More Than Forecast
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I think it’s meant as a barometer of the consumer buying habits now and in the near future. Pessimistic about the future people aren’t going to spend on extras.
Like now.
How in the world do you “forecast” consumer confidence?
I don’t think the official reports use proper methods. But I do think it is possible to forecast consumer confidence and that these forecasts have great significance for all of us. They are significant because it is only by restoring consumer confidence that we will get out of this economic crisis. The ultimate purpose of the stimulus bills is not just to generate temporary spending but to restore consumer confidence and thereby achieve a permanent increase in spending.
The proper way to forecast consumer confidence (in my view!) is to look at stock valuations. Stock valuations always move in the direction of fair value over 10-year time periods. So, if stock prices are high, you know that they will be falling over the next 10 years. That will take money out of people’s pockets, causing them worry over their retirements and making them less likely to spend.
No one feels confident about the future at a time when he is watching the accumulated savings of a lifetime disappear from his portfolio!
Rob