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Tuesday, November 24, 2015

A Holiday Season Drop in Consumer Confidence Confuses Economists

Consumer confidence for November plunged (99.1 to 90.4) to their lowest levels in a year frustrating retailers who hope the holiday season starts out well. Economists are at a loss over how to explain it as the economy is zooming forward with labor increases, contrary reports, and lower gas prices. When all other factors don't seem to jive it is beneficial to look at how questions are being perceived and what else might be going on.

These types of surveys have been around a long time and are commonly used raising its external validity. Internal validity is a little more difficult to gauge as it is based on how the study is conducted and the potential confounding variables the study has within it. Sometimes an answer about optimism of the U.S. economy may be mixed with other factors related to the participants frame of mind.

It is also possible that at the time the poll was conducted something else was going on, a bad sample, or some news came out creating pessimism. The questions elicited a more emotional response based upon a wider frame of reference than expected. For example, some participants might feel the economy is doing well but they are not able to do well with it.

The drop is significant but doesn't seem to be matching much else around it. If there is a bigger factor unknown to the study and mucking up the results it will make itself known radically different results in other polls leading into the holiday season. At present I wouldn't get too excited about the results until they are confirmed by other related polls and data.

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