"Consumer/Investor sentiment is more important to investment decisions than variations in interest rates"
Before I determine whether or not this statement is true or false, let us take a closer look at the statements main components. I am referring to Consumer/Investor sentiment, Interest rates and Investment Decisions.
Consumer sentiment can be defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of saving and spending. Essentially consumer sentiment is the over all "feel good factor" that people may feel toward a particular option available to them, these options may be in the form of a new car which may require a loan from a bank or the purchase of a new house which would require a mortgage. Consumer spending is the most vital component of any economy. Depending on the economy's sheer breadth, consumer spending can range from 50-75% of the Gross Domestic Product (GDP). In the most highly industrialized nations, this percentage is about 65% of total spending. Because consumption is such a major part of any economy it is essential that it be measured and hence the measurement of consumer sentiment, which is derived completely from a consumer's standpoint.
The consumer sentiment index is measured by several bodies. In general, the consumer sentiment indices are produced in a similar manner across different countries. A number of consumer confidence surveys already exist and are well established. Two separate consumer confidence indicators in the U.S are widely reported and followed by policy makers and the financial markets. Both aim to measure consumer confidence in the overall economy. The most notable index is compiled by the University of Michigan. Originally established in the late ...