Since its inception in 1967, the Consumer Confidence Index (CCI) has functioned as a vital economic indicator, providing economists, businesses, and marketers with valuable insights into the sentiments of US consumers. This monthly index offers a glimpse into how ordinary Americans perceive the state of the economy and their readiness to engage in various purchasing decisions, both significant and minor.
Key Takeaways
The Consumer Confidence Index (CCI) is a survey, administered by The Conference Board, that measures how optimistic or pessimistic consumers are regarding their expected financial situation
The CCI assumes when consumers are optimistic, they will spend more and stimulate the economy, but if they are pessimistic then their spending patterns could lead to a recession.
The CCI is based on the Consumer Confidence Survey.
Although the CCI might appear complex, its value in guiding business choices cannot be overstressed. Whether it pertains to recruitment strategies, inventory oversight, or the introduction of new offerings, comprehending consumer confidence is essential for maneuvering through the business cycle
The CCI is a monthly survey-based report conducted by The Conference Board, a non-profit economic think tank. For over five decades, the survey has posed the same five simple questions to 3,000 randomly selected American consumers to gauge how optimistic they are about the U.S. economy.
Each question asks respondents if they feel positive, neutral or negative about a specific aspect of the current or near-future (the next six months) economic climate. The data on the answers to the “current economic climate” questions are sometimes referred to as the Present Situation Index and the data surrounding the “next six months” questions are often called the CCI’s Expectations Index.
The Present Situation Index asks about respondents’ appraisal of:
current business conditions
current employment conditions
The Expectations Index asks about respondents’ expectations:
of business conditions in the next 6 months
of employment conditions in the next 6 months
of their total household income in the next 6 months
Why Is Strong Consumer Confidence Important to an Economy?
The Consumer Confidence Report puts a finger on the pulse of consumers and their current and near-future spending. On a macro scale, a decrease in consumer confidence can predict that aggregate demand for products and services will fall. For households, this often identifies or foretells a decline in discretionary spending or reluctance to pull the trigger on big-ticket purchases like cars, appliances or even, HVAC units.
These high-dollar, long-lasting purchases are called durable goods; they have their own monthly report conducted by the Census Bureau.
For businesses, this can forecast a decline in revenue just around the corner. Shrinking income makes it harder to control inventory levels and may necessitate downsizing a workforce. Companies may also struggle to service debt payments.
Lagging or Leading?
The US Consumer Confidence Index is based on an aggregate of impressions and interpretations of 3,000 households and provides a picture of the current US economy, though economists don’t always agree on what it means. Because consumers are influenced by events that have already happened, some economists classify the CCI as a lagging indicator.
Other organizations, like the Organization for Economic Co-operation and Development (OECD), consider it a leading indicator because consumers are indicating whether they are confident (or pessimistic) in their financial situations to spend (or save) in the future.
Consumer Confidence vs. Consumer Sentiment
While these terms are sometimes used interchangeably, they’re actually two different surveys. The monthly Consumer Sentiment Index (CSI) is administered by the University of Michigan and asks seven questions of 500 households. The CCI and the CSI provide similar data, serving as twin barometers of the general state of the American consumer. Read more about the difference between these two indicators.
Interpreting the figures
The CCI is measured from a benchmark of 100. As confidence increases, the index score rises. Pessimism causes the index score to decrease. Following the Great Recession of 2008, the CCI dropped from 100.9 in July 2007, when indications of the financial crisis emerged, to 96.5 in June 2008.
The Conference Board Consumer Confidence Index® was 104.7 (1985=100) in March, essentially unchanged from a downwardly revised 104.8 in February. Read more about the current Consumer Confidence Index here.
