Consumer Confidence Index

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21 Aug, 2024

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The Consumer Confidence Index (CCI) is a survey that overviews consumer behavior in an economy through spending patterns. The Conference Board is a not-for-profit think tank that provides intelligence for businesses that administers this index. Likewise, this survey reflects consumer confidence and their willingness to spend.

The consumer confidence index data explains consumer spending and savings in an economy. It assumes that the pessimistic consumers will spend less and save more due to their estimation that economy is performing poorly. In contrast, an optimistic consumer will spend more money and stimulate an economy that helps the economy recover from a recession.

What Is The Consumer Confidence Index?

The consumer confidence index (CCI) reflects a consumer's expenditure and savings cycle depending on their present financial and job security and future conditions of the economy.
The Conference Board administers and publishes this index in the U.S after surveying 5000 households every month.
Post the survey, categorization of the responses of consumers into positive, negative, and neutral helps determine the average responses.
The benchmark for CCI is 100, which shows a high level of consumer confidence in the economy. However, rankings below 100 show a declining consumer confidence and tend to spend less and save more.

Consumer Confidence Index (CCI) Explained

The consumer confidence (CCI) index is a measure of the activities of consumers in an economy. These activities explain the state of an economy through the consumers' spending and saving behavior, reflecting their confidence in the economy's performance. For example, suppose consumers are spending more and saving less; it reflects their confidence in the economy and optimism about their future job security.

In contrast, if the consumers are spending less and saving more, it shows they are not optimistic about their financial position or job security, thus saving for the future. Another example of such a situation arising could be high and rising inflation.

Thus, an evaluation to understand consumer confidence was first calculated in the U.S. in 1985 and standardized. The index is upgraded monthly after surveying households and understanding their short-term economic plans, such as savings, expenditure, and unemployment patterns. Hence CCI is an important indicator as consumer spending dominates the GDP.

Data of the planned activities by the households soon, such as vacations, availing for loans and mortgages, spending attitude, auto purchases, or their inflation expectations, reveal their economic outlook. These factors further indicate unemployment status, investments and savings ratio, and thus business cycles for an economy.

A consumer confidence survey is also important because consumer spending and private consumption contribute heavily to a country's GDP. For instance, in the U.S., the average consumer spending makes up almost 63% of the GDP.

Consumer Confidence Index Chart

The consumer confidence index reveals how people feel about the current and future strength of the economy. Thus, to show the difference in consumer confidence due to the occurrence of any major economic crisis or event, the difference is reflected through the consumer confidence index graph below,

The graph above represents values on the y-axis that highlight the CCI outcome for the months from October 2019 to October 2020. The benchmark for CCI is 100, wherein values above 100 show a positive perception of the consumers. As a consequence, the consumers will be saving less and spending more. Similarly, a month-on-month decrease in the CCI (below 100) reflects declining consumer confidence, leading to consumers saving more and consuming less.

Formula

The consumer confidence survey is conducted monthly by collecting data from 5000 households in the U.S. The survey is conducted for different groups each month, and the questionnaire is sent to them by mail. The Conference Board publishes the results on the last Tuesday of every month.

Questions on current conditions include,
- Respondents' views on current business conditions
- Respondents' views on the current job market or employment conditions

Questions on future conditions include,
- Respondent's expectation of future business conditions in the next six months
- Respondent's expectation about employment or jobs market in next six months
- Respondent's expectations on family expectations for the next six months,

The participants shall answer the questions about business and financial conditions as good or bad, and for job prospects and opportunities, they can either respond as 'scarce' or 'plentiful.'

Calculation

For the consumer confidence index calculation, firstly, categorizing responses into positive, negative, and neutral helps determine the average of all responses. These depend on the respondent's confidence in the present and future strength of the economy. Thus, dividing the total number of responses categorized as positive by the sum of negative and positive responses gives the average responses for the five questions of the survey.

A higher number of positive responses means the consumers are optimistic about future economic activities, financial position, and job sustainability. It also pushes the index ranking higher, closer to 100 or above 100.

However, a higher number of neutral or negative responses reflect lower consumer confidence and, thereby, a lower index ranking.

Example

For instance, Alex and Chandler are two friends living in the U.S., discussing their expenditure and saving plans for the next 6 to 12 months. Alex plans to take a vacation with his family around the winter breaks and tells Chandler that it is a much-awaited trip as his daughter will be shifting to another state to start her graduation degree.

At the same time, Chandler shares his plans to purchase a new house next year; thus, he is saving more to afford the mortgage payments and overhead costs.

Therefore, from their conversation, an analyst might deduce that the individuals as customers have a positive image of the economy's future and job security to plan for such expenses. Thus, the CCI shall increase if all the consumers in the economy or households are confident and optimistic about spending. It might also result in rising levels of output and employment in the economy. At the same time, this trend of increased consumer spending will also lead to inflation.

CCI By Country

Various countries worldwide publish their consumer confidence index data accordingly to understand the consumers' spending and saving cycles and their confidence based on their financial stability and job security. Thus, the table below shows the published OECD consumer confidence index for G7 or the Group of 7 developed economies.

Country/ Month	January 2022	February 2022	March 2022	April 2022	May 2022	June 2022	July 2022	August 2022
Germany	100.28	99.77	98.92	98.21	97.78	97.39	96.95	-
Canada	99.64	99.37	99.29	99.13	98.57	97.38	-	-
France	99.61	98.84	97.66	97.02	96.74	96.56	96.61	96.90
United Kingdom (UK)	98.87	97.43	95.96	94.72	93.99	93.63	93.41	93.06
United States	97.53	97.21	96.97	96.79	96.37	95.94	95.90	96.18
Italy	101.24	100.11	98.75	98.05	97.69	97.35	97.05	97.03
Japan	98.45	98.04	97.68	97.52	97.42	97.21	97.05	97.10
OECD - Total	98.80	98.34	97.80	97.40	97.02	96.63	96.43	96.48

The table reflects a trend in consumer confidence above 95 and remains closer to 100 for the initial months, reflecting consumers' optimism. At the same time, the numbers are dwindling lower as the months proceed, which reflects the pessimistic view of the economy.

Frequently Asked Questions (FAQs)

1. What does consumer confidence index measure?

It captures the assurance and trust of the consumers in an economy based on their current and future savings and expenditure plans. It is important as consumer spending greatly contributes to a country's GDP. Thus, estimating consumer confidence enables policymakers to take adequate measures to correct unemployment levels, target inflation, and maintain sustainable levels of GDP.

2. What does a high consumer confidence index mean?

First, it reflects those consumers in an economy are optimistic about the future turn of events, such as their financial strength, job security, and price stability of goods and services. Therefore, it gives them confidence and trust that they can spend more and save less to fulfill their wants, such as spending on auto purchases, mortgages, higher education, etc.

3. How does the consumer confidence index influence the business cycle?

Business cycles thrive with higher profits and sales of goods and services demanded by consumers or households. Thus, to realize higher profits, the businesses invest in the most profitable projects or products that yield higher returns for the investors. Secondly, they ensure to meet the market demand and produce accordingly. Thus, business cycles depend on consumer confidence in spending and their demand for goods and services.