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A consumer confidence index ( CCI) is an economic indicator published by various organizations in several countries.
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.
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 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 and sentiment surveys measure how people are doing financially, how they look at the overall economy of the country or business conditions in the country, if they think that the government is doing a good or a poor job and if people think that it is a good or a bad time to buy a car or to buy or sell a house.
When the business cycle is fairly stable, consumer demand surveys and consumer confidence and sentiment indices will often correlate closely and indicate the same direction of the economy, but in times with a high degree of economic or political uncertainty or during a prolonged crisis, the two types of consumer surveys might differ significantly. In 2011, confidence and sentiment surveys went up from March to April, while consumer demand surveys dropped significantly. In August 2011, the confidence and sentiment surveys dropped significantly and stayed low during September and October, while consumer demand surveys showed resilience, a development confirmed later by official statistics.
A 2022 study found that the consumer confidence index always plays a positive and statistically significant function in the development of consumption.
Consumer confidence is defined by The Conference Board as the degree of optimism on the state of the United States 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 history.
The consumer confidence index started in 1967 and is benchmarked to 1985 = 100. 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".
Each month, The Conference Board surveys 5,000 US households. The survey consists of five questions that ask the respondents' opinions about the following:
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.
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.
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