According to pollsters, roughly 80% of Americans think that the US is headed in the wrong direction. US voters' approval ratings of governmental institutions and politicians are plumbing new lows. Similarly, Americans' view of the economy has become quite negative.
Consumer Confidence, as measured by the Conference Board, has plunged to levels not seen since the spring of 2009. The University of Michigan's Consumer Sentiment indicator has fared slightly better, but is still significantly lower than in the spring of this year. But what does the plunge in consumer confidence mean for consumer spending and retail sales, which drive the American economy? The answer can be seen in the following chart:
In short, Americans' views (as measured by Consumer Confidence) have diverged significantly from their buying patterns. Despite absolutely wretched confidence numbers, retail sales continue to grow at a healthy annual rate. Perhaps this is all a mirage, since retail sales are not controlled for inflation? Here's a chart of retail sales versus CPI:
This shows that real retail sales growth has been in the neighborhood of 3% lately, implying that rising gas and food prices alone are not the whole story here. All this is not to say that the economic forecast is rosy - but with so many economic indicators thrown about, it's important to know which have meaning. Consumer Confidence numbers need to be taken with a grain of salt - watch what consumers do, not what they say. Strong retail sales growth has been a bright spot in an otherwise lousy recovery, and the fact that it has not hiccuped in the last few months of turmoil may bode well for the next few quarters.
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