What Does Consumer Confidence Really Measure?

The Fed is a big believer in consumer confidence numbers. I never understood why because I never could see a strong correlation between confidence and spending.

There is a strong correlation, but it isn’t spending habits. John Hussman provides the answer below.

Multi-year highs in consumer confidence are less a sign of forthcoming consumer spending as a sign of forthcoming investor losses. pic.twitter.com/2jCJYt8T4Q

— John P. Hussman (@hussmanjp) March 9, 2017

Let’s break out that chart with some vertical bars to better indicate what consumer confidence really measures.