A Market Conundrum: Retail Sales Are Up, Consumer Sentiment Is Down

Staff Writer

Sep 17, 2021

Retail sales increased by 0.7% monthly and 1.8% year-over-year, but the August Survey of Consumer Sentiment reported a decline of 13.4%.

KEY TAKEAWAYS

Retail sales increased by 0.7% monthly and 1.8% year-over-year, but the August Survey of Consumer Sentiment reported a decline of 13.4% — the least favorable economic prospects in more than a decade.
Dr. Dan Geller, reminds us of the golden rule in behavioral economics: “always observe what people pay, not what they say.”
Geller points to the August Money Anxiety as the only reliable measure of consumer confidence, since it is “objective and based on actual financial behavior.”
Although the index is still down 19.8 points from August of 2019, the slight increase in confidence explains the 0.7% increase in retail sales this past month.

Retail sales are up but consumer sentiment is down, which initially seems quite strange. Retail sales increased by 0.7% monthly and 1.8% year-over-year (excluding Autos), but the August Survey of Consumer Sentiment, conducted by the University of Michigan, reported a decline of 13.4% — the least favorable economic prospects in more than a decade. So, what is causing this paradox to occur?

To help explain, president of Analyticom LLC, Dr. Dan Geller, reminds us of the golden rule in behavioral economics: “Always observe what people pay, not what they say.” In his latest newsletter, Geller points to the August Money Anxiety as the only reliable measure of consumer confidence, since it is “objective and based on actual financial behavior.” The Money Anxiety Index was 66.4 in August, registering a 2 percentage point increase in consumer confidence. Although the index is still down 19.8 points from August of 2019, the slight increase in confidence explains the 0.7% increase in retail sales this past month.

In order to understand the connection between money anxiety and financial behavior, one must understand the basic theory of money anxiety, which shows that fluctuations in the level of money anxiety impact certain financial decisions. Geller cites the study “Dynamics of Yield Gravity and the Money Anxiety Index,” from the Journal of Applied Business and Economics, which explains that once money anxiety is elevated, people spend less, and when anxiety is relieved, people spend more. This is reflected in the August retail report.

Additionally, the Scientifically Predictable investing model projects increases in equities based on fluctuations levels of money anxiety. The Top Five exchange trade funded (ETF) is a monthly projection of price and return with a high level of statistical confidence.

Analyticom LLC is a behavioral economics firm that specializes in predictive models for financial behavior. For more information, contact Dr. Dan Geller, behavioral economics for financial modeling at www.scientificallypredictable.com.

About the author

Katie Jensen

Staff Writer

Katie Jensen is a staff writer at NMP.

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Sep 17, 2021

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