American confidence in the economic recovery is slowly climbing, according to the Consumer Confidence Index, a survey of 5,000 households. The Index rose to 60.6 in January, after dipping to 52.5 in December. Even though it's' less than the May 2010 high of 63.3, it's better than the all-time low of 26.9 recorded in March 2009. The survey found one out of five respondents thought business conditions would improve over the next six month. (Source: Conference Board, Consumer Confidence Index, January 26, 2011)
What It Means to You
The Consumer Confidence Index is a lagging indicator. This means that most people's confidence depends on what's already happened to them. Even their expectations are based on their past experience, such as losing a job or home. When times are good, the consumer confidence index is around 100. Since the index is now around 60, it means confidence is slowly being restored.
A rising consumer confidence index means the economy will probably avoid a double-dip recession. Why? Although consumer confidence doesn't predict the future, it does have some impact. Confidence drives consumer spending, which makes up 70% of the U.S. economic growth. The economy depends on this confidence to grow. But, it's not a direct, neat correlation. As we saw in December, holiday sales went up 5.5% despite sluggish consumer confidence.
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