Consumer Confidence Index (CCI)
What it is:
How it works (Example):
The UK company Taylor Nelson Sofres PLC (TNS) conducts a monthly survey of 5,000 U.S. households in conjunction with The Conference Board, which is a nonprofit organization for business membership and research.
The survey asks questions in five major categories:
Appraisals of present business conditions and employment
Expectations for business conditions and employment in the next six months
Plans to buy cars, houses, appliances, and other big-ticket items in the next six months
Vacation plans in the next six months
The participants provide objective answers such as "better," "worse," and "same," although some questions have "yes" or "no" answers.
The index is calculated by determining the percentage of positive responses as a percentage of all responses and comparing those values to the benchmark values from 1985 (when the index started). The results are also grouped by age, household income, and geographic region of the United States. The average value of all five survey sections determines the overall Consumer Confidence Index. The Conference Board releases the survey results at 10 a.m. on the last Tuesday of every month.
Most analysts warn against putting too much weight on month-to-month changes in CCI and instead focus on longer-term trends. In general, analysts view changes of more than 5% in the CCI as indications of real economic change.
Why it Matters:
The CCI measures the degree of optimism consumers have about the economy and their personal finances. The notion is that when consumers feel optimistic, they tend to spend more. Thus, an uptick in the CCI can sometimes indicate coming demand and thus more jobs, higher salaries, more demand for capital, and maybe higher inflation. A downtick in CCI can indicate the opposite. This makes the CCI a particularly strong influence on the direction of retail stocks and a very important economic measure overall -- especially in the United States where consumer spending constitutes the majority of gross domestic product.
It is important to note the CCI is ultimately an opinion poll and is not based on actual hard data. Consumers may overreact or underreact to certain aspects of the economy, and their opinions will reflect this. Also, survey measures consumer response to changes that have actually occurred, making the CCI is a lagging indicator. Thus, analysts often look to the CCI for confirmation of what they may already be suspecting in terms of economic direction.