The two leading consumer confidence indices reported conflicting results in their January report – one shows an increase in consumer confidence; the other a decrease. January’s conflicting reports on consumer confidence point to a flaw in asking consumers about their financial confidence rather than observing their financial behavior. The Conference Board Consumer Confidence Index reported that January’s index stands at 80.7, up from 77.5 in December. At the same time, and the same U.S. economy, the Thomson Reuters/University of Michigan's index of consumer sentiment reported a decrease in consumer confidence to 81.2 in January, down from the 82.5 posted in December.
Clearly, an increase and a decrease in consumer confidence cannot occur in the same time and the same place unless there is a sampling bias, which I tend to rule out since both survey organizations are highly professional and reputable. Nevertheless, repeated occurrences of conflicting consumer confidence readings point to a flaw in the concept of asking consumers how they feel about the economy rather than observing how they behave financially.
The latest research in consumer financial behavior shows that there is a gap between what people say about the economy, in response to consumer confidence surveys, and what they actually do with their finances. An example of this gap is illustrated in the Money Anxiety book, which shows how consumers’ financial anxiety started rising three months prior to the time they reported fear of an economic slowdown in response to consumer confidence surveys. This gap, between what consumers say and what they actually do is the root cause of the conflict between the two leading consumer confidence indices.
The Money Anxiety Index measures various economic indicators and factors associated with consumers’ level of financial worry and stress. The Money Anxiety Index consists of monthly measurement of the level of consumers’ financial anxiety for over 50 years. It spans from January 1959 to date. Historically, the Money Anxiety Index fluctuated from a high of 135.3 during the recession of the early 1980s, to a low of 38.7 in the mid 1960s. The 50-year average is 70.7 (July 1980 = 100).