Consumer Confidence Index (CCI)
Imagine that you are talking with your neighbor in your backyard, and you mention that you and your wife are shopping for a new car, you are getting ready to refinance your house and your wife's brother recently lost his job. Your neighbor tells you he was recently promoted, his wife is starting a business and his daughter just bought a new computer. What kind of analysis about the health of the U.S. economy could an economist make based on your backyard conversation? Well, that depends on what the conversation suggests about consumer confidence.
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The mention of recent or upcoming purchases of a computer and a car suggests strong consumer demand. Your plan to refinance your home is a positive sign for the future, implying that you are confident in your ability to meet future mortgage payments. The refinancing suggests also the possibility of lower mortgage payments, which could mean an increase in your discretionary income. Your neighbor's promotion and the start of his wife's new business are also positive economic signs.
The only negative reference during the conversation was the mention of one person who recently lost a job. But, from the other information exchanged between you and your neighbor, the economist might conclude that consumer confidence is high, which is good news for the economy because, on average, consumers are responsible for two-thirds of the nation's economic activity, or the gross domestic product (GDP).
Consumer confidence, measured by the Consumer Confidence Index (CCI), is defined as the degree of optimism on the state of the economy that consumers (like you and me) are expressing through their activities of savings and spending.
The CCI is prepared by The Conference Board, and was first calculated in 1985. In that year the result of the index was arbitrarily set to 100, representing the index's benchmark. This value is adjusted monthly on the basis of a household survey of consumers; opinions on current conditions and future expectations of the economy. Opinions on current conditions *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.
In the most simplistic terms, when their confidence is trending up, consumers spend money, indicating a healthy economy. When confidence is trending down, consumers are saving more than they are spending, indicating the economy is in trouble. The idea is that the more confident people feel about the stability of their incomes, the more likely they are to make purchases.
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:
1. * * * Current business conditions.
2. * * * Business conditions for the next six months.
3. * * * Current employment conditions.
4. * * * Employment conditions for the next six months.
5. * * * Total family income for the next six months.
Survey participants are asked to answer each question as, positive, negative, or neutral.
The results from the Consumer Confidence Survey are released on the last Tuesday of each month at 10am EST.
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