“Consumer Confidence”- we all hear the term but what is it? Let’s try to break that question.
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. 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. Some explain it is by saying it the degree of optimism that consumers have in the overall state of the economy.
Essentially, the thinking is that if consumer confidence is high, consumers will be making more purchases and if it is low they won’t. It’s really consumers reaction to the economy.
The Consumer Confidence Index (CCI) is produced by the non-profit business group The Conference Board and has been doing so 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 the headline Consumer Confidence Index figure each month.
As noted the CCI is based on the data from a monthly survey of 5,000 US households. The data is calculated for the United States as a whole and for each of the country’s nine census regions. Opinion on current conditions make up about 40% of the index while consumer expectations represent about 60% of the questions about the future. After the 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” . This is then compared against a period which is considered a benchmark. 1985 was arbitrarily chosen because it is neither a peak nor trough in the business cycle and thus was given an index of 100.
Though it’s called an index, the report is actually a poll done through the mail. While 5,000 households are contacted only about 3,500 respond. The participants are asked to respond to five questions:
· current business conditions
· business conditions six months hence
· the current employment conditions
· employment conditions in the next six months
· their own total family income in the next six
The Index now stands at 117.9 (1985=100), down from 119.4 in April but the trend is up and that’s good!