Consumer Confidence Index

Released by : Consumer Confidence Board
Background: The Consumer Confidence Index (CCI) is put out by The Conference Board. (There are others such as the Michigan Sentiment Index which is put out monthly by the University of Michigan).

The Consumer Confidence Survey is based on a sample of 5,000 U.S. Households and is considered one of the most accurate indicators of confidence.

It even goes as far as calculating the number of "help wanted" ads in newspapers to detect how tight the job market is.


(The Conference Board Help-Wanted Advertising Index — a key measure of job offerings in major newspapers across America )

What it means for Investors:The idea behind consumer confidence is that when the economy warrants more jobs, increased wages, and lower interest rates, it increases our confidence and spending power. Look for trend changes, many people use a moving average (3-6 months).

Should the index move above or below the moving average it is a good indication that consumer confidence is significant. Month to month changes are not considered to have as great an impact as the overall trend.

Confidence is looked at closely by the Federal Reserve when determining interest rates, which affect stock prices.

Lowering interest rates make it easier to borrow which ultimately supports consumer spending and higher confidence - something the stock markets love to hear.

Keep in mind that lowering interest rates is not an instantaneous confidence booster, it can take 6-8 months for rate cuts to work their way into the economy.

On the other hand, if confidence is rising rapidly it could trigger higher inflation.

Strengths:

the data is divided into various regions across the country therefore differences in consumer confidence according to areas has implications on residential real estate markets. if the survey reports expectations of rising wages it is an indication that the labor market is getting tighter. data is timely and considered to be a predictor of movements in the business cycle.

Weaknesses:

this is just a survey, there are no data series to take figures from. Only "planned spending" is collected rather than actual dollars spent. the CCI is also difficult to predict or forecast the future results because there are no hard figures.

URL : The Conference Board - Trusted Insights for Business Worldwide
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