SAN FRANCISCO—A new report indicates consumer confidence in the economy may not be slipping after all.
The August Money Anxiety Index, which measures actual financial behavior, is exhibiting resiliency when it comes consumer financial confidence, according to Dr. Dan Geller, a behavioral economist who developed the Money Anxiety Index.
“The August flat reading at 43.6 debunks the August University of Michigan Consumer Sentiment Index, which posted its largest monthly decline in August 2019 (-8.6 points) since December 2012, according to the University of Michigan Surveys of Consumers,” Geller said.
The latest figures from the U.S. Department of Commerce indicate that consumers increased their spending by 0.6% in July despite the economic uncertainty.
“This report is consistent with the Money Anxiety Index showing no change in the level of financial confidence in July or August, whereas the University of Michigan Consumer Sentiment survey shows a decline of 8.6 points in August,” Geller noted.
What the Gap Means
“The gap between the August Money Anxiety Index, which measures actual financial behavior such as consumer savings and spending, and the survey-based consumer confidence indices that are based on a questionnaire, is a newly discovered phenomenon in behavioral economics,” Geller said. “This phenomenon called ‘contradictive confidence’ shows that peoples' financial behavior is sometimes different than their stated confidence in response to surveys.”
The main cause of the conflicting confidence phenomenon in August is the hype in recession speculation exposure all month long, according to Geller.
“This constant barrage of recession hysteria adversely affected the responders to the University of Michigan Consumer Sentiment survey. Yet, when it comes to actual financial behavior, consumers did not make any change, which is reflected in the flat Money Anxiety Index,” said Geller.
The study on the Money Anxiety Index is published in the Journal of Applied Business and Economics, demonstrating how changes in the level of money anxiety cause consumers to modify their spending and savings habits.