Consumer sentiment measures how the average person feels about the economy. This is done with a survey, and the baseline for the survey was set at 100 in 1985 when an organization known as The Conference Board began releasing monthly results.
An economic report released Tuesday confirmed that consumers are growing more pessimistic.
The Conference Board Consumer Confidence Index fell to 64.9 from 68.7 in April. Hopes for the future are lower as the Expectations Index declined to 77.6 from 80.4 and the Present Situation Index also fell sharply to 45.9 from 51.2 last month.
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Consumers are less than half as confident about the current state of the economy as they were, on average, when President Ronald Reagan was in office.
Among economists, weak consumer sentiment is being viewed as a possible bullish sign. Bloomberg quoted Jeremy Batstone-Carr, head of research at Charles Stanley & Co. in London, as saying, “Expectations are depressed. Therefore, it is possible that if data beats worst-case fears, that could provide some stimulus for the market. It’s not as if everybody is looking for a gung-ho performance from the U.S. economy.”
Consumer confidence is among the most important economic indicators.
ABC News has studied this indicator in detail and found that it is almost perfectly correlated with retail sales. Improved confidence leads to stronger sales. With consumer activity accounting for over half of the economy, confidence offers valuable insights into whether or not a slowdown is likely.
Not surprisingly given its importance to the economy, the ABC News study also found that consumer confidence can offer insights into upcoming elections.
When confidence is high, incumbents tend to get reelected. To boost his chances of being reelected, President Barack Obama would like to see confidence improve in the coming months.
The numbers indicate the economy could be slowing, with a recession possible later this year, and offer hope to the Republican presidential hopeful Mitt Romney.
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