Written by Admin | Apr 29, 2008 4:00:00 AM
There has been a great deal of talk about consumer confidence plunging to 26 year lows given rising oil and falling house prices. When I attended the University of Dayton's RISE Symposium in late
March, students were asked what their favorite economic indicators were. One said the consumer confidence index and I remember muttering to myself that I thought it was one of the worst. I also remember thinking it a bit strange that college students would have a favorite economic indicator. I think I had a favorite song at that age, but I bet I'd have been hard pressed to even name a single economic indicator.
Anyway, why did I have that reaction? Simply because paying attention to it has cost me money in the past. At least in my experience, it seems to be an excellent reverse barometer of the market's likely near term direction. It hit lows around 9/11 and I remember it hitting lows in the summer of 2006.
Almost every time the media announces a headline grabbing, multi-period low for the consumer confidence index, the stock market has seemed to do what you would least expect -- shoot up. The index is based on a survey of 5000 folks, who are asked somewhat subjective questions about their present situation. Rather than calling it a consumer confidence survey, perhaps we should call it a consumer psychology survey. It seems to do a good job of explaining how we feel at a particular minute in time, but not necessarily how we're acting at a given moment of time or perhaps more importantly, what we'll be thinking one month from now. It's a touchy feely survey, perhaps better analyzed from the perspective of psychologist's chair than an investor's trading desk.
For what it's worth, every time I read that consumer confidence has hit a new low going forward, I'll click my heels three times and say to myself, "there's no worse indicator I know, there's no worse indicator I know."
There now, I feel better already.