Is consumer confidence index a suitable predictor of future economic growth? An evidence from the USA

Abstract

The problem of the prediction of business cycles, and economic recessions in particular, belongs
\namong the most important topics of contemporary macroeconomics. However, economists were
\nnot considerably successful when dealing with the recession forecasting so far, notably, the Great
\nRecession of the late 2000s and early 2010s emerged rather surprisingly. The aim of this paper
\nis to examine the statistical relationship (in terms of Granger causality) between the Consumer
\nConfi dence Index (CCI) and real GDP growth in the USA from 1960 to 2015 in order to fi nd whether
\nthe CCI can be a suitable predictor of the economic growth, or economic recessions respectively.
\nAlso the short-term dynamics of four periods covering US economic recessions (1967-1978,
\n1975-1985, 1995-2005, and 2005-2015) was examined. The main results are that the CCI Granger
\ncauses GDP in the long-run, with the lag of 6 months. As for shorter periods, the CCI Granger
\ncaused GDP in three out of four examined periods, including the Great Recession (with the lag
\nof 3 months), and only for the so called dot-com bubble period Granger causality was reversed,
\nwith GDP causing the CCI with the lag of 6 months. These results indicate that the CCI can be
\nconsidered a suitable predictor of GDP at least for the USA, but more complex and broader study,
\nincluding other major economics such as the European Union, Germany, or Japan, is certainly
\nneeded.