Economix Blog: Polls vs. Markets

Who should be believed? The markets or the consumer-confidence polls?

FLOYD NORRIS

Notions on high and low finance.

The Conference Board reported Tuesday that the preliminary January figure for consumer confidence in the United States had plunged to its lowest level in more than a year, with a decline in expectations leading the way.

The stock market has done very well in January.

The consumer confidence numbers are based on answers to only five questions, three of them calling for forecasts six months out. Those determine the expectations index.

All those forecasts — on business conditions, on employment and on personal income — got worse this month. People are more negative about the first two than at any time since October 2011, a time when talk of a double-dip recession was widespread and the stock market had done a summer swoon. But the income forecast is where confidence seems to have plunged the most.

As recently as last October, more Americans polled by the Conference Board expected their income to increase than decrease over the following six months. Now just 14 percent expect an increase and 23 percent expect a decline. That difference, of nine percentage points, is the largest since the spring of 2009, when the credit crisis was at its worst.

The difference is charted below.

Source: The Conference Board

What brought this on? One analysis is that it is the payroll tax increase that took effect at the start of the year. Others point to the so-called fiscal cliff fight.

But those looking for only domestic explanations may be missing something. Italy’s consumer confidence index for December, reported earlier this week, fell to the lowest level since it began to be calculated in 1996, noted Michael Shaoul of Marketfield Asset Management. And yet the Italian stock market has been rising rapidly since last summer, as fears of a euro zone collapse have abated.

The world economy does look better now than it did only a few months ago, at least to economists and stock traders. But a lot of people seem to think things are going in the opposite direction. At some point, that divergence is going to have to end.

Mr. Shaoul, discussing Italy, says “the odds are that it will be a surge in confidence rather than a collapse in the equity market which restores some balance.”

Here’s hoping he is right.

Article source: http://economix.blogs.nytimes.com/2013/01/29/polls-vs-markets/?partner=rss&emc=rss