Economics professor looks at consumer confidence surveys

Although consumer confidence surveys of various stripes receive extensive media coverage and can move stock markets, a new study by a former Federal Reserve Bank of Philadelphia vice president reveals such surveys have no value at all in economic forecasting.

“Such surveys might tell you about the mood of people when they’re surveyed, but they don’t tell you how people actually spend,” said Dr. Dean Croushore, professor of economics at Robins School of Business. “People may say they’re dissatisfied with the economy, but then they go out and buy a car.”

To examine whether a correlation exists between how people say they feel about the economy and how they actually behave, Croushore first uncovered a flaw in the way previous researchers had tackled the problem. He realized that economic forecasters who used consumer confidence surveys as a variable in their predictions were using data that had been revised several times.

The study builds upon expertise Croushore developed during 14 years as an economist at the Federal Reserve Bank of Philadelphia. From 1990 until he began teaching at the Robins School, Croushore conducted the quarterly Survey of Professional Forecasters, which surveyed a group of 35 economists drawn from academia and the public and private sector for their predictions about the economy.

Those forecasters use variables like past consumption, past income, past changes in interest rates, past returns in the stock market and consumer confidence surveys to conduct their research. It stands to reason, they argue, that consumer confidence, surveyed at about the same time that other key variables are gathered, would significantly boost the accuracy of economic forecasting. Croushore’s analysis, based upon “real time data” over 10 years that’s superimposed on other key variables, shows nothing of the sort.

“My thought was to line up all the variables being used at a point in time that correspond with when the consumer confidence survey was taken,” Croushore said. “My prediction was that people surveyed would know better than a government statistician, what they really were going to be spending. I was completely wrong.”

RICHMOND MATTERS