Consumer Confidence Is The Opposite Of Consumer Spending

Douglas A. McIntyre

AngrybearThe Wall Street Journal makes the point that consumer confidence does not mean much if it does not go hand-in-hand with consumer spending. As the paper reports “Gasoline is still getting cheaper, retailers and auto makers are practically giving stuff away.” People feel better, which means very little.

The actual dynamics of consumer confidence may actually be much, much worse than that, especially in a period when credit is not available, joblessness is rising, and Americans are still deeply in debt.

Consumer confidence may actually be a negative indicator for consumer spending. A citizen who takes a dollar he might have spent on a new TV and puts it into a savings account or pays down a credit card balance takes a sale out of the economy. If the action improves the chance that his financial future will be brighter, he may do it every month. That pushes his confidence up. He is better off today than he was 30 days ago.

It actually makes a great deal of sense that consumer confidence could rise, or at least stay flat, as the recession deepens, no matter how counterintuitive that may seem at first. A recession tends to drive individual spending into hibernation as people hoard dollars to save their own skins. The by-product may be good long-term. As the savings rate moves up, so does the chance that people will not have to go onto the government payroll in their advanced old age.

The microcosm of the consumer spending conundrum can be seen in this year’s holiday spending numbers. Retailers posted poor results. Consumers who did not spend a dollar used it for something they thought was more important. Their kids felt worse because they did not get the new GI Joe or Barbie, but kids are not part of the consumer confidence poll. The parents were relieved that more money stayed in the mattress.

In a remarkably perverse way, watching a neighbor lose a job may also help consumer confidence, at least a month at a time. People who keep jobs may even have a sunny outlook. They have not be taken off to the gallows. A month with employment is a good month.

Consumer confidence is an outstanding sign of falling consumer spending, perhaps the best one around.

Douglas A. McIntyre