Consumer confidence, i.e., the way Americans feel about the economy and their financial health, is critical because their spending accounts for two-thirds of the nation's gross domestic product. U.S. household spending is forecast to grow by 2 to 3 percent this year. While consumer confidence slid in April, the Conference Board, which surveys 5,000 U.S. households, says its index was not near levels seen prior to a recession. Probably not, says Bill Valentine, president of Valentine Ventures LLC, an investment management firm, but first let's look at what these consumer confidence surveys really reflect. Today, we have consumer confidence dropping, yet people are spending as robustly as they were a year ago.
Consumer confidence is simply a reflection of what the mass media are telling people.
It's a case of the media telling people what is going on, rather than what people are actually experiencing. People are not looking over their shoulders and worrying about their next paychecks because the economy is still strong and it is quickly reabsorbing the displaced. Even so, a case can be made that the media's extreme coverage of the risk of a recession can freak out a lot of people. In February, consumer confidence slipped at a slower rate as some 10,600 articles were reported on the recession, a drop of 17 percent from a month earlier. But by March, consumers felt less scared or perhaps bored about all of that recession talk as the number of articles on the subject was up only 6 percent from February to 11,300.