Monthly Dow Return vs. Next Month Consumer Confidence: Correlation?

......Consumer Confidence..... Dow Monthly % Return
Dec 09..... 52.9..... 1%
Jan 10..... 55.9..... (3.48%)
Feb 10..... 46..... 2.55%
Mar 10..... 52.5..... 5.13%
Apr 10..... 57.9..... 1.4%
May 10..... 63.3..... (7.9%)
Jun 10..... 52.9..... (3.54%)
Jul 10..... 50.4..... 7%
Aug 10..... 53.5..... (4.3%)
Sep 10..... 48.5..... 7.95% (MTD)

Oct 10..... 55?...... (8%?)

What is interesting here is that Consumer Confidence has a simple observational correlation with prior month equity returns as measured by the monthly change of the DJIA.

So, today's 48.5 should probably be understood within the context of the August slide in equities rather than the current month's performance. The only thing that I find surprising is that the consensus expected a higher reading (at 54) than August's 53.5, despite the fact that the equity market was down in August.

There are of course thousands of intangibles re: consumer confidence, but as Bernanke seems to believe strongly in the wealth effect, I believe its worth reviewing just how closely Americans watch the equity market for cues about the current and future state of the economy. If correlation between these two figures showed no directional relationship, then one must conclude that the Fed is risking hyperinflation and a lower quality life for middle class Americans without any lasting (or even near month) return (in regards to increased consumer spending, slower household sector deleveraging, etc.. Thankfully, it at least seems that there is, at minimum, a casual next-month correlation.

Go POMO!