The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Chicken . . . or Egg?

11/29/2017

Consumer confidence has reached the highest level in seventeen years.  The stock market has hit record highs.  Is that a coincidence or a real relationship?

Almost all economic data is related to other economic data.  But c onsumer confidence is more closely related to the level of unemployment than the stock market.  When jobs are plentiful, consumer confidence is higher.  Likewise, plentiful jobs indicate the economy is good, which also helps drive the stock market upward.

There is also a class distinction.  The stock market reflects the attitude of the upper income levels, while consumer confidence more closely reflects the attitude of the middle class.  Either way, it looks like it should be a good holiday season for retailers.  (One worrisome sign is that the savings rate has been decreasing for over a year.  To finance a holiday spending spree, consumers are likely to rely on their addictive credit cards, which favors financial stocks.)

Such economic data does not change greatly over a short period of time.  Both the stock market and consumer confidence have enjoyed a fairly steady improvement since 2009.  And, there is no sign of the next recession, especially during this holiday season.  So, enjoy! 

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