The U.S.
Consumer Confidence Index (CCI) is an
indicator designed to measure
consumer confidence, which 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.
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 calculated 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.
Calculation
In simple terms, increased consumer confidence indicates economic
growth in which consumers are spending money, indicating higher
consumption. Decreasing
consumer confidence implies slowing economic growth, and so
consumers are likely to decrease 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:
- 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 have 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 are calculated for the United
States as a whole and for each of the country's nine census
regions.
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.
Consumer Confidence Index in the United States
The Conference Board Consumer Confidence Index is the most widely
accepted index among the United States media, businesspeople, and
many consumers. The chart to the left shows the index over time
from June 1997 to January 2009.
Other measures of consumer confidence in the United States
In addition to the Conference Board's CCI, other survey-based
indices attempt to track consumer confidence in the U.S.:
- The University of
Michigan Consumer Sentiment Index (MCSI) is a consumer
confidence index published monthly by the University of Michigan.
It uses an ongoing, nationally representative survey based on
telephonic household interviews to gather information on consumer
expectations regarding the overall economy.
- The Washington
Post-ABC News Consumer Comfort Index is a consumer confidence
index based on telephone interviews with 1,000 randomly selected
adults over the previous four-week period. It asks respondents "to
rate the condition of the national economy, the state of their
personal finances and whether now is a good time to buy
things".
Given the potential for sampling biases of individual survey
reports, researchers and investors try sometimes to average the
values of different index reports into a single aggregated measure
of consumer confidence. The
Consumer Confidence Average from
StateOfEconomy.com aggregates data on consumer confidence into a
weighted average of three major national polls.
Consumer Confidence Index in India
Original Article Indian consumer confidence
index
Consumer confidence is a key driver of economic growth. It is
widely considered an economic indicator of household consumption
expenditure. Consumers tend to increase consumption when they feel
confident about the current and future economic situation of the
country and their own financial situation. The relevance of such an
index for a country like India is evident from the fact that
Consumption Expenditure accounts for over 60% of India’s GDP.
The CNBC-TV18 Boston Analytics Consumer Confidence Index
[10344]is derived from a monthly survey of
10,000 targeted respondents across fifteen Indian cities—Delhi,
Mumbai, Kolkata, Chennai, Hyderabad, Bangalore, Ahmedabad,
Chandigarh, Nagpur, Kochi, Jaipur, Lucknow, Bhubaneswar, Patna, and
Vishakhapatnam via face-to-face interviews. The sample aims at
capturing the major contributors to the personal consumption
component of the GDP.
The CNBC-TV18 Boston Analytics Consumer Confidence Index for June
stands at 72.8, registering an increase of 2.5% from May’s reading
of 71.0.The Current Situation Confidence Index increased by 2.1%,
from 70.2 in May 2009 to 71.7 in June 2009. The Future Expectations
Confidence Index also increased by 1.5%, from 72.3 in May 2009 to
73.3 in June 2009.However, the long term trend remains negative and
the current bounce to 72.8 should not be viewed prematurely as a
change in trend. The combination of improving economic outlook,
improvement in pessimism about employment conditions, strength in
optimism regarding household income and personal financial
conditions along with a newly installed government promising
economic reforms to stimulate the economy have led to a bounce in
consumer confidence in June. However, the long term trend remains
negative and the current bounce to 72.8 should not be viewed
prematurely as a change in trend. It is important to note that we
might have to observe a continuation of this bounce over several
months before a change in trend can be declared. In particular,
sentiment pertaining to consumer spending remains very weak.
Consumer confidence index in the Republic of Ireland
KBC Bank Ireland (formerly IIB
Bank) and the
Economic and Social
Research Institute (a think-tank) have published a monthly
consumer sentiment index since January 1996.
References
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