Sunday, 3 May 2009

What do consumers know?

From David Smith's column today:
Economists are sometimes sceptical about consumer-confidence measures. What can consumers know that economists do not? In the past couple of years, however, consumer confidence has tracked the road to recession well.
What consumers know that economists do not is how much money consumers are going to spend. How much they're going to invest. How much risk they want to take.

Consumer confidence is not a forecast of economic conditions by consumers (though it might be linked with that) - it's a primary data point governing consumer behaviour.

One may as well object to the use of the Baltic dry-shipping index as a predictor of GDP by asking what a ship knows that an economist does not. Apparently, quite a lot.

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