Ford School professor of public policy and economics Betsey Stevenson writes in Bloomberg about the relationship or lack of relationship between consumer sentiment and economic performance. Instead, she says, we should focus "on consumers' ability to spend."
"The first step is to realize that consumer sentiment has simply become a less reliable predictor of consumers’ behavior. So while sentiment has been improving, this doesn’t necessarily mean that spending will stay strong throughout 2024."
She explains why consumers have been so resilient the past three years including spending their savings, and making up for what they missed during the pandemic, including vacations and other goods.
She points out, "This is a challenging moment for monetary policy, and the Fed can’t let itself get distracted by the false warnings of recession that have clouded economic discussions over the last few years. Instead, it needs to focus on the reasons that consumer behavior has been unusual."
