Consumers Send Mixed Messages On Economy

What's Next In Payments®
2:30 PM EDT August 7th, 2013

Consumers and pollsters are sending mixed messages about their confidence in the U.S. economy.

Just over one week ago, Thomson Reuters and the University of Michigan released new data that suggested consumer confidence reached its highest peak in six years this June. Days later, Gallup cast uncertainty on this evaluation when it revealed economic confidence was worsening in July.

The results beg the question, how can consumer feel optimistic if their economic outlook is deteriorating?

Gallup’s Economic Confidence Index dropped to -13 for the week ending July 28. This was nearly 10 points lower than its levels in June, when the index was observed at -3. Meanwhile, Thomson Reuters/University of Michigan found its results were so positive, University of Michigan economist Richard Curtin declared that confidence would propel consumer spending for the second half of the year.

One could look to variations in the methodology for an explanation. Gallup asked consumers to rate both current and future economic conditions, while Thomson Reuters and the University of Michigan had respondents factor in their own financial situation.

However, a closer look at these studies may reveal a larger shift in how consumers view both the current and future economy and their ability to succeed in these different conditions.

A Closer Look At The Gallup Report

Gallup found that Americans’ net economic outlook was -10 last week, meaning more respondents said they believed the economy is getting worse. Forty-two percent of consumers said they thought the economy was getting better during the study period, compared to the 52 percent who said they believed conditions were worsening.

Overall, 19 percent of respondents said they believed the state of the economy to be “excellent” or “good.” Thirty-five percent reported that they believed it was “poor.” This was down from the -9 observed in early June, the time of the Thomson Reuters/University of Michigan study.

Consumers Confident About Today, Hesitant About Tomorrow

David Houle, co-founder of financial investment management service Season Investments, suggested that the surveys point to a larger disconnect in how consumers currently feel about the economy. 

“Another way of looking at it is that the [Thomson Reuters / University of Michigan Consumer] Sentiment Index is more a measure of how people feel about today, and the [Gallup] Economic Confidence Index is more a measure of how people feel about the future,” Houle told PYMNTS.com via email.

Houle suggested consumers are picking up on economic uncertainty about the future, and that their responses show evidence of this. Houle cited the fact that the housing market has caused the economy to improve while simultaneously increasing home prices as evidence of his estimations.

“Upward trending asset prices improve people’s moods, while higher rates call the future sustainability of the economic recovery into question,” he said.

How Economists Are Interpreting The Results

Economist Ken Goldstein of the Confidence Board indicated that concerns about certain sectors of the market may be holding back overall optimism. His organization’s Leading Economic Index, which also incorporates unemployment claims and housing data, remained unchanged in June.

“The biggest uncertainties remain the pace of business spending, the improvements in consumer spending power and the impact of slower global growth on U.S. exports,” Goldstein said in a statement.

Richard Curtin, chief economist for Thomson Reuters, echoed Houle’s statements, implying that consumer confidence and economic outlook are beginning to decouple.

“The July survey suggests a growing resilience among consumers that will enable them to more easily withstand the cross-current inevitable in a slow growth economy,” he said in a statement.

With this statement, Curtin seems to suggest that consumers may simply be adjusting to the new economic realities, and that while optimistic, they have altered their expectations to adjust to slower-than-expected growth.

For a closer look at the numbers for your own evaluations, read the complete Gallup report here.

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