No confidence in confidence
by Phillip Blanchard
Trump won. Consumer and small-business confidence surged. Now what?
Correlation is not causation. Although the election result has been “credited” with improving some measures of the economy, there is no objective proof of it. The headline states flatly that Donald Trump’s election was what caused increases in “confidence.”
This story exacerbates the fallacy by its dependence on a single source, a Wells Fargo economist.
The consumer “confidence” and “sentiment” surveys are intended to indicate what the public thinks will happen financially to themselves and the nation. The reports, then, are predictions about matters about which the respondents cannot know.
We are not statisticians, so we cannot make intelligent comments about the surveys’ methodologies. But we know, for example, that it’s pointless to ask people what they think will happen six months in the future. If the survey respondents could make such accurate predictions, they shouldn’t worry about their finances because they could make a killing in the stock markets. There is no indication that the survey administrators go back to the people they question to find out how predictions of their own financial status matched reality. And any on-target predictions would be coincidental.