Tuesday, December 21, 2010

Consumer Confidence Index

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.


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
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  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.

Consumer confidence index in 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.

See also


No comments:

Post a Comment