Monday, May 4, 2009

Consumer Confidence improves - GDP to follow?

The above images are from Paul Kedrosky and from the New York Times, respectively.

The top image is the graph of the 12-month change in US Consumer Confidence, as measured by the University of Michigan. The shaded areas indicate official US recessions. As you can see, consumer confidence tends to decrease coincident with recessions. Note also that the change in consumer confidence is less negative of late, in fact, consumers are now more confident than they have been at any time since last November.

The bottom image is the growth/decrease in our GDP from one quarter to the next, expressed at an annual rate. This is the major measure used to determine the onset and conclusion of recessions by the National Bureau of Economic Research. Note that GDP dropped by about 1.5% from Q3 2008 to Q4 2008 (that gives us the 6% annual rate), and by another 1.5% from Q4 2008 to Q1 2009. That means that we (US) produced $210 billion less in Q4 than in Q3, and another $210 billion less in Q1 than Q4.

Since the consumer spending makes up about 70% of our GDP, perhaps the improvement in the Consumer Confidence index is a sign of better economic times ahead?

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