Consumer confidence numbers released today by the Conference Board showed a significant decline in October. Indeed, it moved the Index back to recession lows. Couple this with European and U.S. debt issues, and we are setting up for a possible bleak holiday selling season.
Economists, however, generally discount consumer confidence measures as simply coincident indicators that add no predictive or explanatory power beyond that provided by hard statistics like jobs and income. But when you see a disconnect like that shown below, something must be going on. In this instance, the popular explanation is that high-income households, which account for the bulk of retail sales, have kept on spending and now account for an even larger share of total sales.
That explanation is partly true, and is confirmed by the performance of high-end retailers like Neiman Marcus and card issuers like American Express. But there are two simpler explanations that are just as important. First, the retail sales tally is indifferent as to whether the purchase is made with a paycheck, a welfare check, or food stamps. In the latter two cases (which are a growing share) the buyer was probably not exuding confidence.
Additionally, there is probably more inflation hidden in the total retail sales than many expect. Food consumed at home has risen 6.3% in cost over the past year, and gasoline is still up 33%. There is also inflation in all types of medical services (another area where the consumer is often not the direct payer).
All told, this was a concerning release. It may not tell us much about future retail sales, but is does point to a level of consumer anxiety that politicians of all stripes will attempt to exploit – and, by doing so, will only instill more uncertainty.