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The blue line stands for Consumer Confidence, trending downwards throughout 2007.

The red line stands for Retail Sales, trending upwards throughout 2007.

Clearly, there's no connection because consumer surveys are supposed to measure how Americans feel about the broad economy and their personal economy over the near-term.

If confidence levels are falling, consumers are expected to spend less because of the uncertainty.  By contrast, when confidence levels are rising, consumers are expected to spend more.

Because consumer spending accounts for two-thirds of the economy, consumer confidence surveys are considered a good predictor of future growth.

According to the graph, though, the expected correlation doesn't exist.  Despite falling confidence levels, retail sales are increasing and the economy continues to move forward.  This is because what people say they'll do and what they actually do are rarely the same. 

Consumer Confidence surveys are tools more appropriate tools for politicians than for economists.  They provide terrific insight into the American psyche today, but do nothing to predict the future.

Sources
Reuters/University of Michigan Surveys of Consumers
https://customers.reuters.com/community/university/default.aspx

Retail Sales Data (2007)
US Census Bureau
http://www.census.gov/svsd/advretl/download/2007/

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.