Looking Ahead

03/09/2010 at 11:08 am 2 comments

It has been observed that making decisions on the basis of economic releases is like driving your car while looking only in the rear view mirror. The “latest” data, as a rule, only tells you what happened in the past: that GDP number refers to last quarter, those unemployment figures are the fruit of hiring decisions taken possibly years ago, and even that inflation number only tells you what prices did last month.

As with any rule, however, there is an exception. Confidence surveys can give a reliable indication of future economic outturns as they poll people about their intentions, and private consumption is invariably the largest component of economic output.

This week, consumer confidence data was published for the US, the UK and the Eurozone. In each case confidence both rose on the month and exceeded economists’ expectations.

Regular readers will know that we believe in getting under the skin of this kind of data. So in the US, it is true that the published number of 53 remains well below the long term average for the series (going back to 1967) of 95 – but it’s way above the bottom of 25 reached in 2009. In the UK, the number was almost exactly between the highest and lowest since the series began in 1981, while the Eurozone release confirms a dramatic recovery in confidence to levels which now exceed those of 2004-5.

Consumer confidence is typically influenced by such things as employment, interest rates, inflation and asset prices (especially housing). So a sharp rise in joblessness, bank rates or inflation, or a renewed collapse in asset prices, could cloud the horizon anew.

For the moment, however, we should take some reserved comfort from the only forward looking data we have to hand. The longer they have to operate without further shocks, the further the immeasurable processes of the private microeconomy will drive the recovery.

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How Low Can You Go? The Burden Of Debt

2 Comments

  • 1. The Burden Of Debt « The Blog @ Vigilant Financial  |  10/09/2010 at 11:25 am

    […] remain sceptical of a double dip and constructive on the economic outlook, therefore, but cautiously so. Events over the last couple of weeks should serve to remind us that […]

  • […] not hopeful. In a world where economic data largely tells us what happened weeks or months ago, confidence surveys are an exception in that they afford a glimpse of what might lie ahead (“leading indicators” in the […]

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