28 Jun What is the Consumer Confidence Index?
Business headlines regularly publicize a drop in America’s Consumer Confidence Index. What is the Consumer Confidence Index and what doesit indicate? In a nutshell,a drop in the indexmeans that consumers have become more pessimistic about economic conditions.
Compiled monthly by an independent research firm, the CCI is based on a survey of 5000 households who are asked to rate the following five questions as positive, negative, or neutral. (1) Current business conditions; (2) Business conditions for the next six months; (3) Current employment conditions; (4) Employment conditions for the next six months; and, (5) Total family income for the next six months.
Calendar year 1985, chosen as a year close to the 1967-1985 average, is used as the benchmark, with an arbitrary score of 100. The CCI thus measures the degree to which members of the sample were confident about the present and short-term prospects of the economy, relative to consumers in 1985.
The index peaked above 140 in 2000, remained near 100 for most of the period 2001-July 2007 (with a dip in March, 2003), and then began a steady decline, to 95 in October, 2007, 66 in March, 2008, 58.1 in May, and was 50.4 in June 2008, when I wrote this article. Economic stimulus checks distributed in April and May of 2008 appear to have had little or no effect on consumer perceptions of their buying power.
The Index is useful to corporate planners and investment advisors as a predictor of consumer spending decisions. A low CCI signals that individuals are likely to cut down on luxury spending, postpone major purchases, and be reluctant to incur debt when going without is an option. This is not necessarily bad news for everyone. An investment advice site commented: “when the index is low, non cyclical stocks tend to do well. Think toilet paper.”
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