Is The Customer Wrong?

Although the Consumer Confidence Index rose to 51.9 this month from 51, the Conference Board describes the reading as "very pessimistic." But according to a recent CNN Money story, low confidence might be a hint that things are actually looking up.

"Consumer confidence is one of the most watched economic indicators, especially in tough times. But it’s also one of the most bogus in my opinion," CNNMoney.com editor at large Paul R. La Monica says, adding that confidence is simply an emotion.

La Monica says it’s more important to monitor what consumers are doing rather than how they’re feeling. Personal consumption expenditures rose 1.1 percent in the first quarter, and economists are anticipating even stronger consumer spending numbers in the second quarter, thanks in part to the economic stimulus checks.

"The fact that retail sales have remained quite strong even though confidence is historically bad is interesting. You would think sales would be way down," says Jonathan Parker, professor of finance at Northwestern University’s Kellogg School of Management.

"When consumer confidence is this low, it’s probably not a sign of a top but a sign that we’re closer to a bottoming phase," says Hank Smith, chief investment officer of Haverford Investments. "It is one of the most lagging indicators there is."

Read the full story here.

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