Should We Care About Consumer Confidence?
The latest round of consumer confidence numbers are, quite frankly, a mixed bag. One set, put out by the venerable Conference Board, reports a dip "to 61.1 this month from a revised 64.8 in December," while the less-established Bloomberg Consumer Comfort Index, whose measurements are comparatively short-term, registers an uptick over the last week. (It should be noted that the latter fluctuation is partially attributable to rising incomes, which in turn may be a temporary result of holiday season price reductions.)
Both conclusions are believable. For all the myriad reasons for consumers to be gloomy about the economy (unemployment remains unacceptably high, particularly underemployment) there also are bright spots that warrant cautious optimism -- an increase in non-farm payroll jobs, growth in the manufacturing and construction sector and, above all, today's positive report from the Department of Labor.
In any case, the utility of these numbers as an economic indicator may be limited. In December, Mijin Cha wisely noted that the Consumer Confidence Index is "flawed."
Just because people are willing to spend money does not mean that the money spent will benefit the domestic economy. Most of the consumer goods purchased in the U.S. are imported, which means that consumer spending leads to economic development in other countries and not economic development domestically. For example, even though clothing purchases have steadily increased since 2007, shipments from U.S. apparel factories decreased, as did the number of apparel jobs.
Businessweek highlighted the same issue a few years ago, in an effort to dispel the notion that consumer spending constituted 70 percent of GDP. "How many of those laptops and iPods do you think are made in the U.S.?" they asked parenthetically. (The recent New York Times series on Apple reminds us of the depressing answer to this question: Not many.)
Paradox of thrift notwithstanding, I don't see the softening of consumer confidence as wholly negative. As I wrote just before Christmas, American consumers -- flush or otherwise -- are imbued with a patriotic obligation to part with their hard-earned wages on maddenly frivolous pursuits. If a lack of confidence diminishes this impulse, that's a silver lining.