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News | Question of the Week, WC 2nd Sept
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Question of the Week, WC 2nd Sept

Q: How come the Conference Board and University of Michigan surveys told such different stories in August, with the former little changed while the latter plunged to a three-year low?

A. Sampling differences and errors, the slightly different timing of the surveys each month, and the exact wordings of the question all help generate variations in the short term readings from the surveys, but over time they tell similar stories.  There are methodological differences too; most notably, the Michigan is a phone survey, while the Conference Board survey is conducted by mail. Both organizations claim to correct the raw samples to match national demographics, but there’s no way to judge how successful they are.  

It’s not useful to characterize one or other of these surveys as “better”, but it does make sense to take much more notice of the expectations numbers than the headline or current conditions measures.  The latter tend to be influenced by labor market conditions, which lag the pace of economic activity.  Most of the time, the expectations components in the two surveys are quite closely related - both respond to the stock market, gas prices, and external shocks - but Michigan index is released first, so it can be used to forecast the Conference Board measure, most of the time.  Sometimes, though, they move in opposite directions, for no apparent reason; they’re just noisy.

The current conditions numbers are different. The Conference Board version tends to track the unemployment rate, so it clearly lags the cycle, while the Michigan version tends to track jobless claims, which tend to move earlier. But both measures also respond to shocks, regardless of what’s happening in the labor market, which is why the increase in Conference Board current conditions for August was such a surprise, given the intensification of the trade war and the wobbles in the stock market. It’s reasonable to think sampling error was partly to blame, and a reversal in September seems a decent bet.

More broadly, it seems reasonable to think that consumer confidence has now peaked, at least until a trade deal allows the removal of the tariffs and a sustained revival of both the manufacturing sector and the stock market.  That does not seem imminent.

Ian Shepherdson, Chief U.S. Economist

Pantheon Macroeconomics

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Posted: 9th Sep 2019

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