Consumer Confidence And The Economy

: Chris Lee Law Firm

  Filed under: Economy

economy and debtWe are in debt, the country is in debt. The job market is less than fruitful and the majority of us are treading water just to stay afloat financially. In times like these it is easy for us to become cynical and pessimistic about the fate of our economy. Many people suggest that when consumers hold back to prepare for the worst, the economy takes a further dive into the deep end.  However, many economists are pushing the idea that we have the power to influence the economy in very positive ways.

A report released yesterday suggested that consumer confidence is up as of July. An economic industry board studied the attitudes of consumers regarding their confidence in the economy as well as the level of their economic expectations.

Although the increase was less than 2 percentage points, the report suggests the increase is a hopeful sign of what is to come. While some are clutching onto this glimmer of good news, others argue that there is no real influence of consumer attitudes on the economy.

Take It To the Lab

A few years ago a study was conducted to evaluate whether a link between consumer sentiment, or attitudes, and economic fluctuations existed.  In short, the study did reveal a statistically significant link between consumer attitude and the economy. More specifically, when consumer attitudes towards the economy dropped, and pessimism and doubt increased; a dip in economic functioning was observed. Interestingly, the study also showed that each historical recession was proceeded by a drop in consumer attitudes.

Of course, this study did not make any major claims regarding the power of influence held by consumer attitudes, rather it simply pointed out their notable findings. It could be argued that the drop in attitudes prior to a recession was brought on by early indicators of an impending recession. By the time the consumer attitudes were measured, they could have resulted from these early indicators, and not truly independent of the following recession.

Although it is hard to find direct evidence to suggest whether we, as consumers, truly do hold any power of influence over the economy, it would be safe to assume that holding a positive outlook would not do any harm.

Sources:

http://www.chicagotribune.com/business/breaking/chi-consumer-confidence-edges-up-in-july-20110726,0,7700820.story

www-rcf.usc.edu/~matsusak/Papers/Matsusaka_Sbordone_1995.pdf -


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