Feeling v. Doing

We had an active discussion in the last week regarding consumer opinion/sentiment and spending, the actual amounts they buy. Colleagues were surprised by my assertion that the relationship is not as well defined as many believe. Specifically, improvements in sentiment are essentially meaningless. They do not necessarily translate into changes in spending. The graph here shows the two.

Real Consumer Spending and Consumer Sentiment

Real Consumer Spending and Consumer Sentiment

As we can see, over time consumption expenditures increased even while spending fell. So there has been a long run trend to lower consumer sentiment, which to be clear is bad, yet spending increased. This is why I say the relationship is essentially meaningless from a predictive standpoint. I am concerned with what people do, and they continue to spend while saying they are less confident about the future.

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