Consumer confidence in January dropped to the lowest level in a year, most likely because of the reduced net pay caused by the increase in social security taxes. The lower take-home pay had an emotional impact on survey respondents.
The trouble is that many people will take the low January index and assume it means bad things for the economy through the near term. These people will be fooled (again) by a monthly indicator that does not help anyone see into the future.
Consumers apparently felt bad about their pay even as housing starts and car sales are moving higher, retails sales are at a record high, and employers are hiring. Let us also add in that the stock market is moving higher and manufacturing is expanding.
My advice Ignore the monthly consumer confidence trend and watch ITR Economics’ traditional leading indicators as they indicate what will be happening 6 to 12 months from now. They are signaling economic expansion in the US through the first half of 2013.
Readers of the ITR Trends Report™ know that we use the Consumer Confidence Index after it is converted to a rate-of-change format. That conversion takes the monthly data and transforms it into a good leading indicator. That indicator is still positive, indicating good news for the economy as we cruise through the first half of the year.