A market conundrum: retail sales are up, consumer sentiment is down
Retail sales are on the rise but consumer confidence is on the decline, which initially seems quite strange. Retail sales grew 0.7% per month and 1.8% year-over-year (excluding autos), but the August survey of consumer sentiment, conducted by the University Michigan reported a 13.4% drop – the least favorable economic outlook in more than a decade. So what is causing this paradox?
To help explain, Analyticom LLC President Dr. Dan Geller reminds us of the golden rule of behavioral economics: “Always watch what people pay, not what they say. In his latest newsletter, Geller says August’s financial anxiety is the only reliable measure of consumer confidence because it is “objective and based on actual financial behavior.” The monetary anxiety index stood at 66.4 in August, recording a 2 percentage point increase in consumer confidence. Although the index is still down 19.8 points from August 2019, the slight increase in confidence explains the 0.7% increase in retail sales last month.
In order to understand the connection between money anxiety and financial behavior, one needs to understand the basic theory of money anxiety, which shows that fluctuations in the level of anxiety related to money money have an impact on certain financial decisions. Geller cites the Journal of Applied Business and Economics’ Dynamics of Yield Gravity and the Money Anxiety Index study, which explains that once money anxiety is high, people spend less, and when money anxiety is high, people spend less. anxiety is relieved, people spend more. This is reflected in the August retail report.
Additionally, the scientifically predictable investment model predicts an increase in stocks based on fluctuations in levels of money anxiety. The Top Five Exchange Trade Funded (ETF) is a monthly projection of price and return with a high level of statistical confidence.
Analyticom LLC is a behavioral economics company specializing in predictive models of financial behavior. For more information, contact Dr Dan Geller, Behavioral Economics for Financial Modeling at www.scientificallypredictable.com.