Tag Archive | households

I was curious about the difference between “consumer confidence” and “consumer sentiment”, and whether they capture the same or different information. So I compared the two. Yes, they ask different questions (or similar questions differently), and I’m certain that someone trying to sell you the data would argue vehemently that they are completely different (and that of course their data is far superior). But it turns out they’re highly correlated — a correlation coefficient of 0.85 since January 1978. You could predict more than 70% of the changes in one index based on the other.

So evidently the big difference was that the name “consumer confidence index” was already registered.

I also found that both indexes are very noisy; they jump around a lot, even when there’s nothing noticeable changing in the economy. So I thought, if they’re two noisy signal capturing basically the same thing, why not average them together? Maybe that will give a clearer picture.

No dice. The average of the two still jumped around so much that a graph was barely interpretable.

So I did what any good data scientist does in such a situation — I took a moving average. Even then, the graph wasn’t pretty. I had to go all the way up to a 12-month moving average to get a clear, meaningful graph. The result has the lags and smoothed-out-ness to be expected from such a long moving average, but I still found it interesting, particularly when superimposed with recessions.