Thursday, July 12, 2012

Consumer sentiment vs. government policy

The golden rule of statistics application is: "correlation does not necessarily imply causality". But DB is making that claim nevertheless - at least in part. The claim is that poor opinion on government economic policy in the US is resulting in low consumer sentiment (0.79 correlation), and therefore low consumer spending and stagnant economic growth. But can this be proven? Or is there another factor that's having a similar impact on both indicators?

Source: DB (click to enlarge)

The fact remains however that both are depressed relative to history. And if DB's theory is right, an improvement in government policy (at least as perceived by the consumer) should quickly translate into stronger economic conditions via this relationship.
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