The Guest Blog

Bowyer: Calling Out The Confidence Game

It's far and away the most over-covered and under-predictive sign of economic trouble – the Consumer Confidence Index.

We’ve all seen the recent headlines “Worst Consumer Confidence level in five years”, “Lowest consumer sentiment since Katrina”, and today the mother of all consumer confidence confabs “Lowest Consumer Confidence in 16 years!”

Sounds pretty scary, that is until you actually look back at what happened respectively 3, 5, and 16 years ago to investors. Then you see that low Consumer Confidence seems to be more of a herald of booms than of busts. Sure Katrina coverage scared the living daylights out of the country, but after that passed, the Dow soared up to 14,000. Yes, surveyed consumers echoed the prevailing sentiment back to the pollsters, but, again, someone who bought stock at that bottom, nearly doubled their money over the ensuing 5 years.

Then there’s the Oct 1992 Consumer Confidence conundrum. Have any of the pundits who reported the '16-year-low’ story reminded you that the prior trough in sentiment preceded one of the greatest economic and investor booms in US History? (Sorry, Republican friends, there really was a Clinton Boom).

Why does the monthly Consumer Confidence Index mislead us so? Partly because we are stuck with some 19th century economic fallacies in our head, like consumers need to be constantly stimulated in order to keep the economy moving. George Bush tapped into this bit of economic phrenology when he urged post-9/11 citizens to go out and shop for their countries. Listen, every retail worrier, to what I’m saying: ALL THE MONEY GETS SPENT! If, saints forbid, someone actually saves a little rather than dropping it at the mall, it still gets spent, because savings are the source for capital. If I save a few bucks, it goes through our various capital aggregators (banks, mutual funds, ETFs, etc.) and into the hands of some business. So, although, I don’t purchase a new suit, someone purchased the computer on which they track the inventory for suits, etcetera, and on it goes. Someone who panics over consumer confidence is, unknowingly but implicitly, thinking that saving is a negative for the economy.

The other problem with the Consumer Confidence Index is that it doesn’t actually measure consumer’s confidence about consuming. This deserves fuller treatment in itself, but the questions asked by the Conference Board are really general economic conditions questions. Only one out of five topics focuses on the specific conditions of that household, and that one focuses on income, not spending. In other words, consumers are asked principally about "the economy" in general, the thing they know least about. And only asked a bit about their lives, the thing they know the most about.

I suspect that the consumers are recirculating gloomy headlines, feeding the general foreboding of the press back to the press, where it appears as yet more gloomy headlines in a kind of never ending economic Ouroboros (you know, the snake eating it’s own tail thing) of despair.

(Click here to see Jerry Bowyer's comments on Kudlow & Co. about national security in presidential politics).


Jerry Bowyer is chief economist at Benchmark Financial Network and makes regular appearances on CNBC. He also writes extensively on finance and history for the National Review, The Pittsburgh Post Gazette,, and The New York Sun. He can be emailed at