By Tom Fredrickson
News articles frequently mention consumer confidence and how consumers make up 70% of the economy; they often question whether things can get better with consumers so unhappy and unemployment so high. The market can sell off when consumer confidence numbers are negative.
Of course consumer confidence and unemployment are important for a sustainable recovery, but more crucial for forecasting are coincident indicators like GDP growth. What’s happening now – a growing economy – is more important than how consumers feel about the past. It takes a while for the good news of the economy to sink in with consumers and for them to become more optimistic and start spending.
Leading indicators are even better guides to what will happen. Even though the stock market cans move too far to the upside or the downside, historically it has been one of the best leading indicators.