Thursday, September 5, 2013

Consumer Confidence Anticipates Job Market Conditions

I couldn’t let this story pass by: a component of consumer confidence is one of the best predictors of the job market.

It is specifically the Present Situation Index that seems to do well at anticipating changes in the job market by about four months, according to a New York Fed paper. Pedro da Costa tells all about it:

Say it with confidence: Consumer surveys as a leading indicator of jobs

Considering how hard it is to predict the job market, the consumer confidence measure does remarkably well over the past thirty years — see the charts and statistics at the above link. It makes sense when you consider that the staffing decisions that shape the job market are fundamentally a consequence of business mood (and financial measures of business that are closely tied to mood). Perhaps the consumer questions and answers that make up the Present Situation Index tap into the mood of business in a way that consumers on average are in a position to observe it.