More Consumer Confidence in July

Aug 1, 2007 – The Conference Board’s Consumer Confidence Index (released Tuesday) rose by 7.3 index points to 112.6 in July (Chart 1). That was its highest level since August 2001 (when it was 114.0).[1]

Chart 1. The Consumer Confidence Index. February 1967 through July 2007.

This decisive upturn in July consumer confidence may be a good omen for consumption growth in Q3. (Real consumption rose at a reasonably sturdy 2.9% annual rate, on average, for the four quarters through Q2. But, growth slowed to a disturbingly weak 1.3% in Q2.)

However, when it comes to the link between confidence and spending, we can’t always count on consumers to “walk like they talk”.

Consumer confidence and real consumption growth do tend to move more or less in step, over the long run (Chart 2). But, viewed closer in – from month to month, or even from quarter to quarter – this relationship is hard to pin down.

Chart 2. Consumer confidence and real consumption growth. Q1 1967 to date.

Suzanne Rizzo

Footnotes:

[1] August 2001 was close to the midpoint of the last recession. This seems to suggest that consumer confidence should have been much lower than it was. At the time, however, it was not yet widely perceived that the economy was in a recession. That consensus was reached after the September 11, 2001 terrorist attacks.

Sources:

• The Conference Board, Inc. (http://www.conference-board.org) - the Consumer Confidence Index.
• U.S. Department of Commerce, Bureau of Economic Analysis (http://www.bea.gov) - real consumption.
• National Bureau of Economic Research (http://www.nber.org) - recession dates.