Feeling Confident?

Deteriorating confidence over the last several months has soured the economic landscape. About four months ago, the Conference Board’s Consumer Confidence Index reached an 18-year high. Since then, the gauge has dropped about 18 points, its biggest three-month decline since 2011. Sentiment’s swift decline has caused some to wonder if a drop in confidence could be self-fulfilling, as lower confidence could weigh on consumer spending, and consequently, on output. Historical data show that the U.S. economy has entered a recession an average of 19 months after a peak in consumer confidence, and a drop in sentiment has been a warning sign for past economic cycles [Figure 1].

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