Understanding the US economy is paramount for any business owner. To get a sense of what consumers are really thinking and feeling about the economy (and how that might affect their spending patterns), the Consumer Confidence Index (CCI) is crucial. Find out everything you need to know about the CCI index with our comprehensive guide. First off, check out our definition of the Consumer Confidence Index.
Definition of the Consumer Confidence Index
The Consumer Confidence Index, created in 1967 by the Consumer Confidence Board, is a survey that measures how consumers feel about current and future economic conditions. It helps people to understand how optimistic or pessimistic the American populace feel about the economy, as well as their ability to find employment. The Consumer Confidence Index is published on the last Tuesday of every month and is widely regarded as a barometer of the robustness and stability of the U.S. economy. For a little more information on the most recent CCI index, follow this link to the OECD.
How does the Consumer Confidence Index in the US work?
The Consumer Confidence Index is based on a survey of 5,000 households in the US. The survey consists of five Consumer Confidence Index questions, two of which are related to current economic conditions and three of which are related to future economic conditions. The questions about present economic conditions cover the following ground:
Appraisal of present business conditions
Appraisal of present employment conditions
And the questions about future economic conditions investigate the following topics:
Expectations around business conditions in six months’ time
Expectations around employment conditions in six months’ time
Expectations around total family income in six months’ time
There are three basic responses: negative, positive, and neutral. After the Consumer Confidence Index data has been collected, it’s compared against the relative value from 1985 (the year that the index was calculated for the first time). In 1985, the Consumer Confidence Index was exactly 100. So, if the most recent index scores above 100, it means that consumers are more confident than they were in 1985. However, if the most recent index is less than 100, it means that confidence has dropped.
What’s the impact of the Consumer Confidence Index data?
The basic principle behind the Consumer Confidence Index in the US is that when consumers feel optimistic, they’re willing to spend more, which helps to stimulate the economy. However, when they’re feeling pessimistic, their altered spending habits can lead to a recession. The Consumer Confidence Index is monitored by retailers, banks, manufacturers, and the government, and is often factored into their decision-making process:
A decreasing trend in the CCI would indicate that consumers have a negative outlook on the economy and their ability to secure jobs, which may lead them to avoid significant retail purchases. As a result of this Consumer Confidence Index data, manufacturers may therefore reduce their inventories and attempt to slash overheads.
On the other hand, an increasing Consumer Confidence Index may indicate that consumer buying patterns are on the uptick. To take advantage of this trend, manufacturers may ramp up production, while the government may expect increased tax revenues as spending starts to rise.
As a business owner, paying attention to the Consumer Confidence Index in the US can give you a possible insight into future market conditions, helping you budget and plan accordingly.
Consumer Confidence Index (CCI): lagging or leading?
Most economists view the Consumer Confidence Indicator as a lagging indicator, which means that it follows or confirms economic trends. However, it’s also important to note that some economists do see the CCI index as a leading indicator (changes before the economy takes a turn, helping policymakers to predict changes in the economy). This is because a rise or fall in the Consumer Confidence Index data is often a good indicator of future consumer spending.
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