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In the short term, measures of consumer confidence can be fickle, evidenced by the recent slide in the stock market of late, but over the long run, statistical analysis demonstrates that the trends in consumer confidence are usually a good indicator of future consumer spending trends.

As the chart illustrates, the Conference Board’s Consumer Confidence Index is choppy from month-to-month, but the longer-term trend over the past few quarters is one of gradual improvement. It is interesting to note that in 2013, nearly four years into the recovery, consumer confidence levels were still down in the 60s. And by now we all know that a lack of confidence, both by consumers and businesses, is one of the defining characteristics of this recovery.

The data now indicates that consumer confidence levels have gradually improved in the past couple of years. More importantly, attitudes are now finally at a level that suggests consumers are actually “optimistic” about their current financial situation and their prospects for the future. In other words, being a little “less pessimistic” about either the current or expected economic conditions is not likely a good indicator of an overall rise in future spending. But being “optimistic” about the future might just motivate such an increase.

Another trend that could support this hypothesis is the recent acceleration in the growth rate for the data for consumer credit outstanding in revolving accounts. This is the data that measures the cumulative balance that consumers are carrying on their credit cards.

Although an increase in consumer credit may be an indicator of consumer confidence, it’s not necessarily a good thing for the economy overall.  For more information on the impact of excessive debt on the economy refer to this article on the Econinsertc.com website.

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