What is the Consumer Confidence Index and what does it mean for you?
In countries like China, up to half of the national gross domestic product comes from public sector investment. But in the United States, consumption is king. About 70% of US GDP is the result of consumer spending. The country’s astonishingly huge $23 trillion economy depends almost solely on Americans’ appetite for buying things and paying people to do things for them. Economists use the Consumer Confidence Index (CCI) to gauge this appetite, because when it wanes, America’s status as the world’s economic superpower will also wane.
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The CCI is an important leading indicator
Lagging indicators are economic models that confirm trends that are already underway. The unemployment rate, for example, only increases once jobs have already been lost. Leading indicators, on the other hand, are forecasting models that attempt to predict future change in the economy.
The CCI is one of the most important and most watched leading indicators.
Economists use the CCI to try to anticipate whether people will save or spend more money in the near future based on their attitudes towards their own financial situation and the economy as a whole.
When people are confident, they spend money on things like vacations, washing machines, and personal trainers, which helps America’s consumer economy and boosts GDP.
When people are anxious, they will instead go without and save that money to prepare for the lean times they think are just around the corner. This prevents those dollars from entering the economy, which hinders economic growth.
Everything is based on a survey
As essential and predictive as the CCI is, the entire index is based on the results of a monthly survey that asks a few thousand people just a few simple questions about things like their plans for major purchases, their ability to save money and their perception of the economy. A publicly traded research company called Nielsen conducts the Consumer Index Survey on behalf of the Conference Board, a nonpartisan, nonprofit think tank. The Conference Board releases survey results at 10 a.m. EST on the last Tuesday of each month.
It is rated on a scale of 100.
The index is measured by a base score of 100. Anything above 100 represents an increase in consumer confidence. When the index drops below 100, it means people are anxious and are likely to spend less in the near future in favor of savings. In December 2022, the CCI improved to 108.3, up from November 2022.
In December 2022, the CCI improved to 108.3 after two consecutive months of decline. A favorable outlook for the economy and employment pushed the index above the baseline of 100 set at the start of the survey in 1985.
The results were a great indication that consumers were less concerned than they were about inflation and the possibility of a recession – and that kind of economic anxiety is precisely what the index was designed for. assess.
The Consumer Confidence Index is a reflection of the discussions taking place at kitchen tables, water coolers and more commonly, on remote work platforms like Slack every day across the country. Has anyone you know lost their job or gotten a promotion? Are you considering buying a house or have you seen a neighbor’s house foreclosed?
These types of personal feelings are directly related to GDP because they determine whether people save or spend their extra money. The more they spend, the more the GDP increases. As GDP grows, the economy grows, consumer confidence rises, people spend more and the cycle continues…until one day it is no longer the case and a recession arrives to crush all confidence. who remained.
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