Confidence Boost

28/03/2014 at 5:02 pm

Some time ago we looked at the rare phenomenon that is the consumer confidence indicator:

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 out-turns 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.

Conference Board data for the USA rose to a six-year high. In Euroland the indicator reached its highest level since November 2007, punching above the twenty year average for the measure in the process. And in the UK, GfK data showed the mood of the British consumer improving to its strongest pitch since August 2007.

At the more granular level in Europe in particular the signs have been encouraging. We dealt recently with the risk posed to the eurozone by possible weakness in France; well, French consumer confidence data posted the strongest result this week since July 2012. In Italy too, we had the best result for this indicator since the year before that. Both of these outcomes were positive surprises for the market.

Elsewhere in the world the news is not so unequivocally positive. In Japan for instance, the sales tax goes up on Tuesday from 5% to 8% – a well-flagged move but one which has had a measurable impact on confidence and consumer behaviour. Then again, one might equally point to the positive surprise in the US, which suggests that the growth impact of the coldest winter since 2009-10 / 1911-12 (depending on the measurement period) will prove more transient than some had expected.

This week’s releases are good news. This blog highlighted going into the New Year that growth would be a crucial topic for 2014. Political risk and anxiety over the Chinese peril certainly do not help. But these confidence indicators suggest that developed-world growth, which has only just begun growing over consecutive quarters for the first time since 2010, will continue to improve from here. That would certainly help bring us closer to the end of the beginning of the protracted torture of the financial crisis .. And, of course, closer to a new set of problems in due course.


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