While it’s important to realize that consumer confidence isn’t necessarily the best–and shouldn’t be considered the only–data to measure the state of our economy, it can be used by investment managers to help predict, adapt and react to impending fiscal changes.
“It’s never just the number. It’s the change in the margins,” said Bill Garvey, founder of Hilton Capital Management. “Consumer Confidence is just one of a multitude of data points that paint a larger picture. We don’t have a magic formula where one particular indicator has an outsized impact on our philosophy or guidance.”
Hilton Capital Management is a privately-held investment firm that was founded in 2001.
Important To Understand The Consumer Confidence Data
For decades, consumer confidence has as long been touted as one of the best ways of measuring the state of our economy, but many people have questioned just how reliable this data is and whether or not it is a reliable indicator of consumer spending and the overall health of our economy.
It’s important to note that this is measured by survey responses provided by the average consumer, so it can be pretty subjective. In fact, studies have shown that there is a strong correlation between these consumer responses and the perceived health of the economy.
It’s important to note that the information provided during these surveys cannot be redacted; that is, if a consumer changes how they feel after economic conditions have either improved or declined, their original sentiment, as reflected in the survey, will remain the same.
“We always advise clients against reading too much into those economic indicators, especially the ones that can be rather subjective,” says Hilton Capital Management. “It can be compared to the physician telling a patient not to google their symptoms, since the patient will start to project and then it will lead to all kinds of things.”
Still, that kind of data can help us predict cycles; for example, declining consumer confidence can create a lack of putting money into the economy which, can then result in a declining GDP and possibly a recession.
Here’s what consumer confidence doesn’t take into account: savings that relate to paying for college tuition or purchasing a home.
Moreover, studies have shown that consumers are twice as likely to spend money when they believe they are getting a good bargain, but it doesn’t represent an uptick in long-term spending. Rather, it’s just a temporary response to changes in the market, namely price markdowns and other sale incentives.
At the end of the day, there are three constants in the investment industry: constant change; constant pressure to produce results, no matter what the state of the economy, and constant competition.
The financial landscape is ever-changing, so the best piece of advice would be to work with someone who has the expertise to react and adapt to meet these changes.
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