Consumer Confidence Index

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The US Consumer Confidence Index (CCI) is defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending. Global Consumer Confidence is not measured. Country by country analysis indicates huge variance around the globe. In an interconnected global economy, tracking international consumer confidence is a lead indicator of economic trends.[1]

In the United States consumer confidence is issued monthly by The Conference Board, an independent economic research organization, and is based on 5,000 households. Such measurement is indicative of consumption component level of the gross domestic product. The Federal Reserve looks at the CCI when determining interest rate changes, and it also affects stock market prices.

The Consumer Confidence Index was started in 1967 and is benchmarked to 1985=100. This year was chosen because it was neither a peak nor a trough. The Index is caluculated each month on the basis of a household survey of consumers’ opinions on current conditions and future expectations of the economy. Opinions on current conditions make up 40% of the index, with expectations of future conditions comprising the remaining 60%. In the glossary on its website, The Conference Board defines the Consumer Confidence Survey as “a monthly report detailing consumer attitudes and buying intentions, with data available by age, income and region”.

Another well-established index that measures consumer confidence is the University of Michigan Consumer Sentiment Index, run by University of Michigan's Institute for Social Research.

1 Calculation
2 How it is used
3 Consumer Confidence Index in the United States
4 Consumer Confidence Index in the Republic of Ireland
5 References
6 External links

[edit] Calculation

In the most simplistic terms, when their confidence is trending up, the economy is growing and consumers spend money, indicating higher consumption. When confidence is trending down, the rate of economic growth is slowing and consumers are likely to slow their spending. The idea is that the more confident people feel about the economy and their jobs and incomes, the more likely they are to make purchases. Declining consumer confidence is a sign of slowing economic growth and may indicate that the economy is headed into trouble.

Each month The Conference Board surveys 5,000 U.S. households. The survey consists of five questions that ask the respondents’ opinions about the following:{http://www.pbs.org/newshour/bb/economy/consumer_confidence/ }

Current business conditions
Business conditions for the next six months
Current employment conditions
Employment conditions for the next six months
Total family income for the next six months

Survey participants are asked to answer each question as “positive”, “negative” or “neutral". The preliminary results from the Consumer Confidence Survey are released on the last Tuesday of each month at 10am EST.

Once the data has been gathered, a proportion known as the 'relative value' is calculated for each question separately: each question's positive responses are divided by the sum of its positive and negative responses. The relative value for each question is then compared against each relative value from 1985. This comparison of the relative values results in an ‘index value’ for each question.

The index values for all five questions are then averaged together to form the Consumer Confidence Index; the average of index values for questions one and three form the Present Situation Index, and the average of index values for questions two, four and five form the Expectations Index. The data is calculated for the United States as a whole and for each of the country’s nine census regions.

[edit] How it is used

Manufacturers, retailers, banks and the government monitor changes in the CCI in order to factor in the data in their decision-making processes. While index changes of less than 5% are often dismissed as inconsequential, moves of 5% or more often indicate a change in the direction of the economy.

A month-on-month decreasing trend suggests consumers have a negative outlook on their ability to secure and retain good jobs. Thus, manufacturers may expect consumers to avoid retail purchases, particularly large-ticket items that require financing. Manufacturers may pare down inventories to reduce overhead and/or delay investing in new projects and facilities. Likewise, banks can anticipate a decrease in lending activity, mortgage applications and credit card use. When faced with a down-trending index, the government has a variety of options, such as issuing a tax rebate or taking other fiscal or monetary action to stimulate the economy.

Conversely, a rising trend in consumer confidence indicates improvements in consumer buying patterns. Manufacturers can increase production and hiring. Banks can expect increased demand for credit. Builders can prepare for a rise in home construction and government can anticipate improved tax revenues based on the increase in consumer spending.

[edit] Consumer Confidence Index in the United States

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The Conference Board Consumer Confidence Index is the most widely accepted index among the United States media, businesspeople, and many consumers.^{[citation needed]} Note: The time line on this graph reads right to left with the 2007 data on the far left and the 1997 data on the far right.

[edit] Consumer Confidence Index in the Republic of Ireland

IIB Bank and the Economic and Social Research Institute (a think-tank) have published a monthly consumer sentiment index since January 1996.^[1]

[edit] References

^ ESRI Consumer Sentiment

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