The Flinchum File

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Confident and Cocky


The relentless flow of good economic data can become boring.  Indeed, the latest Consumer Confidence Index is the highest in eighteen years.  Remembering that a confident consumer will spend more money than a frightened consumer and that consumer spending is about two-thirds of GDP, this new data suggests continued strong economic growth and even stronger retail stocks.  Yea!

However, this index has been even higher eleven times, all in 1999-2000, setting the stage for that recession.  But, the index was not so high prior to the Global Financial Crisis in 2008-9.  This suggests that the Consumer Confidence Index might be a better predictor of recession than a financial crisis.  Don’t fear a recession — Do fear a financial crisis!

There are leading economic indicators, contemporaneous indicators, and lagging indicators.  Consumer Confidence is all three but is too volatile to be really meaningful.  Consumer Income is not growing fast enough to sustain Consumer Spending.  Without that growth in income, Confidence will drop.  (I suspect this Index will also drop considerably after Mueller’s report is released but then bounce back.)

Bottom Line:  There is no recession on the foreseeable horizon.  Be confident about the economy, but don’t get ever too cocky about another financial crisis!

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