Consumer confidence

Consumer confidence is an economic indicator which measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. How confident people feel about stability of their incomes determines their spending activity and therefore serves as one of the key indicators for the overall shape of the economy. In essence, if the economy expands causing consumer confidence to be higher, consumers will be making more purchases. On the other hand, if the economy contracts or is in bad shape, confidence is lower, and consumers tend to save more and spend less. A month-to-month diminishing trend in consumer confidence suggests that in the current state of the economy most consumers have a negative outlook on their ability to find and retain good jobs.

Usage

Investors, manufacturers, retailers, banks and government agencies use various assessments of consumer confidence in planning their actions. The ability to predict major changes in consumer confidence allows businesses to gauge the willingness of consumers to make new purchases. As a result, businesses can adjust their operations and the government can prepare for changing tax revenue. If confidence is dropping and consumers are expected to reduce their spending, most producers will tend to reduce their production volumes accordingly. For example, if manufacturers anticipate consumers will reduce retail purchases, especially for expensive and durable goods, they will cut down their inventories in advance and may delay investing in new projects and facilities. Similarly, if banks expect consumers to decrease their spending, they will prepare for the reduction in lending activities, such as mortgage applications and credit card use. Builders will plan for the decline in home construction volumes. The government will get ready for the reduction in future tax revenues. On the other hand, if consumer confidence is improving, people are expected to increase their purchases of goods and services. In anticipation of that change, manufacturers can boost production and inventories. Large employers can increase hiring rates. Builders can prepare for higher housing construction rates. Banks can plan for a rise in demand for credit products. Government can expect improved tax revenues based on the increase in consumer spending.^{[citation needed]}

United States

There exist several indicators that attempt to track and measure consumer confidence in the US:

Consumer Confidence Index

Consumer Confidence Index (CCI) is a monthly release produced by the non-profit business group The Conference Board since 1967. The CCI is designed to assess the overall confidence, relative financial health and spending power of the US average consumer. The Conference Board releases three headline figures each month: Consumer Confidence Index, the Present Situation Index, and Expectations Index.

Methodology of the CCI

The CCI is based on the data from a monthly survey of 5000 US households. The data is calculated for the United States as a whole and for each of the country’s nine census regions. The survey consists of five questions on the following topics: i) current business conditions, ii) business conditions for the next six months, iii) current employment conditions, iv) employment conditions for the next six months, v) total family income for the next six months. After all surveys are collected, each question’s positive responses are divided by the sum of its positive and negative responses. The resulting relative value is then used as an “index value” and compared against each respective monthly value for 1985. That year was chosen as a benchmark year because it was neither a peak nor trough in the business cycle. The index values for all five questions are averaged together to produce the CCI. The average of index values for questions i and iii form the Present Situation Index, and the average of index values for questions ii, iv and v form the Expectations Index.^[1]

University of Michigan Consumer Sentiment Index

University of Michigan Consumer Sentiment Index (MCSI) is a monthly release produced by the University of Michigan. The MCSI is designed to gauge consumer attitudes toward the overall business climate, state of personal finances, and consumer spending. The University of Michigan releases three related figures each month: Index of Consumer Sentiment (ICS, or MCSI), Index of Current Economic Conditions (ICC), and Index of Consumer Expectations (ICE). The most recent data for ICS is published by Reuters here.^[2] The Index of Consumer Expectations is an official component of the U.S. Index of Leading Economic Indicators.

Methodology of the MCSI

The Index of Consumer Sentiment (ICS) is based on the monthly telephone survey of the US household data. The Index is aggregated from five questions on the following topics: i) personal financial situation now and a year ago, ii) personal financial situation one year from now, iii) overall financial condition of the business for the next twelve months, iv) overall financial condition of the business for the next five years, v) current attitude toward buying major household items. The ICS is calculated from computing the “relative scores” for each of the five index questions: the percent giving favorable replies minus the percent giving unfavorable replies, plus 100. Each relative score is then rounded to the nearest whole number. All five relative scores are then summed and the sum is divided by 6.7558 (the 1966 base period) and the result is added 2 (a constant to correct for sample design changes from the 1950s). ICC is calculated by dividing the sum of the rounded “relative scores” of the questions one and five by 2.6424 and adding 2. ICE is calculated by dividing the sum of the rounded “relative scores” of the questions two, three, and four by 4.1134 and adding 2.^[3]

Washington–ABC News Consumer Comfort Index

Washington–ABC News Consumer Comfort Index represents a rolling average based on telephone interviews with about 1,000 adults nationwide each month. The survey began in December 1985. The Index is based on consumers’ ratings of the economy, the buying climate, and personal finances.

Methodology of the Consumer Comfort Index

The Index aggregates consumer responses to three questions on the following topics: i) national economy ("would you describe the state of the nation’s economy these days as excellent, good, not so good, or poor?", ii) on personal finances ("would you describe the state of your own personal finances these days as excellent, good, not so good, or poor?") and iii) buying climate (“considering the cost of things today and your own personal finances, would you say now is an excellent time, a good time, a not so good time, or a poor time to buy the things you want and need?"). The Index is derived by subtracting the negative response to each question from the positive response to that question. The three resulting numbers are then added and divided by three. The index can range from +100 (everyone positive on all three measures) to -100 (all negative on all three measures).^[4]

Consumer Confidence Average Index

Consumer Confidence Average Index

Consumer Confidence Average Index (CCAI) is a monthly indicator that aggregates data from three major national polls on consumer confidence. It represents the rescaled average of Conference Board Consumer Confidence index, Reuters - University of Michigan Consumer Sentiment index and ABC News Consumer Comfort index. CCAI is produced and published by the StateOfEconomy.com.

Methodology of the CCAI

The CCAI takes into account historical values of three indexes starting from January 2002. The value 0 of the Consumer Confidence Average represents the average value of the weighted average of three indexes. The value +/-100 of the Consumer Confidence Average represents one standard deviation from the average value. The value +/-200 of the Consumer Confidence Average represents two standard deviations from the average value and so on.^[5]

Canada

The Conference Board of Canada's Index of Consumer Confidence has been ongoing since 1980. It is constructed from responses to four attitudinal questions posed to a random sample of Canadian households. Those surveyed are asked to give their views about their households' current and expected financial positions and the short-term employment outlook. They are also asked to assess whether now is a good or a bad time to make a major purchase such as a house, car or other big-ticket items.

India

Main article: Indian consumer confidence index

The relevance of a consumer confidence 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[1] 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.

Israel

The Israeli consumer confidence index is conducted by Israel's daily Globes and is published monthly by Globes's research unit.

Worldwide

There has been no systematic attempt to track and measure consumer confidence around the world. The Nielsen Global Consumer Confidence Index measures the confidence, major concerns and spending habits of online consumers in 54 countries on the half-annual basis. The Index is developed based on consumers’ confidence in the job market, status of their personal finances and readiness to spend. It is produced by the Nielsen Company (Nielsen Customized Research) from its Nielsen Global Online Consumer Survey. In April 2008 the survey answers included responses from 28,153 online users.^[6]

GfK NOP Consumer Confidence Barometer (UK)

The Consumer Confidence Barometer has now been running in the same format across Europe since the early 1970’s. GfK have been conducting the Consumer Confidence Barometer in the UK since June 1995. The survey is carried out on a monthly basis on behalf of the European Commission, who sponsor the same research in all European Union member countries. The main aim of this research is to monitor the general public’s confidence in the British economy. Each month the survey tracks changes in personal finance, general economic situation, inflation, unemployment, current purchasing climate, consumer spending and saving. Quarterly research tracks car purchasing, home purchasing and home improvements. Results from The Consumer Confidence Barometer are available as either a 6-monthly or annual subscription, running from May – April. Subscriptions can also be taken out part way through subscription year Purchase of back-data is also possible. The Consumer Confidence Barometer is published on the last working day of each month at 00:01am

References

1. ^ Understanding the Consumer Confidence Index
2. ^ Reuters/University of Michigan Surveys of Consumers
3. ^ Surveys of Consumers Reuters, University of Michigan
4. ^ The Washington Post-ABC News Consumer Comfort Index Survey
5. ^ Consumer Confidence Average Index
6. ^ Nielsen

External links

• The Conference Board website
• Conference Board Consumer Confidence Index page
• Reuters/University of Michigan Surveys of Consumers
• Consumer Confidence Average Index
• Conference Board of Canada Consumer Confidence
• Consumer Confidence Index in India
• A List of Consumer Confidence Surveys
• GfK NOP Consumer Confidence Barometer