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What to make of a dip in consumer confidence

December 29, 2010

| MoneyRates.com Senior Financial Analyst, CFA

Amid consistently cheery reports about holiday spending, it was a little surprising to see consumer confidence dip in December. With rates on savings accounts, money market accounts, and CDs badly needing some sustained economic strength in order to get moving upward again, is this lapse in consumer confidence a setback for depositors?

About the Consumer Confidence Index

The Consumer Confidence Index is a monthly survey of 5,000 consumers overseen by the Conference Board, which is an independent business research organization.

The survey asks consumers whether they feel positively or negatively about various aspects of the economy, and the results are compiled into an index to see if optimism is increasing or decreasing over time. While the December result means that consumer confidence is no worse than it was a year earlier, it was a little jarring to see the Consumer Confidence Index decline from November's level in the midst of what seemed to be generally positive news about the economy.

Why was there a dip in December?

It's important to note that a survey of sentiment like the Consumer Confidence Index can be either a leading or a trailing indicator. In other words, consumer confidence may set the tone for spending patterns that drive the economy, but it also may simply be a reaction to economic news that has already been reported.

Further complicating interpretation of these results is the fact that consumers are very capable of disconnecting their behavior from their opinions--i.e., spending more even when they are concerned about the economy.

Perhaps the most telling aspect of the recent consumer confidence survey is that the percentage of consumers describing business conditions as "bad" and the percentage of those describing conditions as "good" both declined. This means that more survey respondents--most of them, in fact--wound up in the undecided middle. In other words, they don't know what to make of this economy.

That makes it easier to dismiss the significance of December's dip in consumer confidence--and to continue to hold out hope for higher savings, CD, and money market rates in the New Year.

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