An Econometric Analysis of Consumer Sentiment and ... - NABE

ate adds 3.19% to consumer sentiment and 6.99% to consumer confidence. The "Stock Market Effect" is symmetricand continuous.DJIA Trigger Effect: There is another impact that the stock market can have on consumer attitudes that isindependent of the so-called Stock Market Effect and is similar to the Gasoline Price Trigger Effect. When the DowJones Industrial Average (DJIA) increases and surpasses a round 1,000-point level—for example, from 11,950 to12,150—there is an extra upward spike of 0.78% to consumer sentiment and 2.48% to consumer confidence. TheDJIA is widely followed and seems to enter consumers' psyche more readily in terms of personal milestones thanother stock market indicators.Labor Market Conditions (Initial Claims and the Unemployment Effect): Labor market conditions are a criticalcomponent to overall consumer conditions. Initial claims for unemployment insurance benefits and the unemploymentrate have a different dynamic and each impacts consumer attitudes in a negative, yet different way. A 10% increasein monthly average initial claims for unemployment benefits (per civilian population 16 years of age and older)subtracts 2.05% from consumer sentiment and 2.93% from consumer confidence. The unemployment rate does nothave a statistically significant impact on consumer sentiment; however it does on consumer confidence. A 10%increase in the unemployment rate places downward pressure of 1.18% on consumer confidence. This is easilyexplained by the prominence and importance the media places on the unemployment rate and its monthly updates.Since the unemployment rate and initial claims are lagging indicators of the economy, it is easily understood thatconsumer sentiment and confidence lag behind the Institute of Supply Management indicators and the stock marketindexes.Recessions of 2001 and 2007: The 2001 recession lasted from March 2001 to November 2001. There is nostatistical evidence that it contributed to the decline in consumer sentiment or consumer confidence when all theother factors were accounted for. However, when considered in the context of the consumer confidence index, itcontributed to a 3.01% increase during the recession period.On the other hand, the Great Recession (from December 2007 through June 2009) had a clear and statisticallysignificant effect on both consumer indexes, with reductions of 3.16% on consumer sentiment and 6.20% onconsumer confidence during the recession months. This result is consistent with previous IHS Global Insight researchinto the causes of the recessions. The 2001 recession was milder (in GDP terms) and qualitatively different from the11 IHS Global Insight Published 7/1/11