Consumer confidence: An economic indicator to watch

by Paydayloans24725 Apr 2016

On the April 26 episode of my Lykken on Lending internet radio show, one of my cohosts, Joe Farr, talked briefly about the direction that consumer confidence is headed. Most of the time, when you think of consumer confidence or consumer sentiment, you think of product-oriented shopping. Large scale general merchandise retailers are certainly interested in consumer confidence. The signal is relevant to the consumer goods industry, but is it really relevant to the mortgage industry?

It's true that the willingness to buy more expensive orange juice, fancier home decor, or nice clothes is a relatively modest step forward in the consumer's budget. Being confident enough to splurge a little bit here and there doesn't necessarily mean that consumers are confident enough to take out loans. So why should those of us in the mortgage industry care about consumer confidence?

Consumer confidence in the smaller scale purchases such as consumer goods is an important metric, because it is the first step toward larger scale purchases such as mortgages. One period of high consumer confidence probably simply means that people will be willing to do more grocery shopping. However, several consecutive periods of high consumer confidence can indeed indicate a surge in mortgage applications.

Like anything else, a single statistic doesn't carry much weight. However, a continual trend is certainly worth taking note of. When it comes to consumer confidence, watch it closely. If it's high for a long period of time, you may just see more business coming into the industry -- and you'll need to plan accordingly.


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