I was just having a conversation with a friend who asked me how retail spending could remain strong (up more than 8% year-over-year through June in nominal terms) , while consumer confidence was taking a dip.

I outlined transfer payments (i.e. unemployment), lower taxes, bifurcation between classes (as he rephrased it, 'the top 10% of income earners have one "vote" each in the confidence measures, but multiple "votes" in the spending category'), and quite frankly that the bounce in year-over-year retail spending hid the fact that in real terms, we were still below pre-crisis (i.e. 2007) levels.

Here's one more thought... the present situation confidence index had been weak, but individuals thought things were going to get better. If August is not just noise, that may no longer be the case.

The devil's advocate in me wants to point out that historically, a large decline (10+ points) in consumer confidence has on average been a great time to buy risk assets as it tends to mark a bottom (see here).

We shall see.

Source: Conference Board