Introduction

The Conference Board conducts the Consumer Confidence Index (CCI), a poll that gauges consumers' optimism or pessimism regarding their anticipated financial status. The Consumer Confidence Index measures American sentiments toward the present and future state of the economy. It reveals how upbeat people feel regarding the state of the economy and their prospects for employment. The CCI is founded on the idea that cheerful people will spend more and boost the economy, whereas pessimistic customers' purchasing habits may cause a slowdown or recession.

How Does the Consumer Confidence Index Work?

The index was designed in 1967 by the Conference Board. The survey at the time was computed differently and was only sent out twice a month by mail. Today, a poll is conducted online, and the results compared to responses from 1985 are used to gauge confidence. Consumer confidence has increased since 1985 if the most recent indicator is above 100. They are less confident than they were at that time if it is below 100. The present situation index and the expectations index are two different indices combined to create the total Consumer Confidence Index.

Latest CCIs

The Conference Board's February CCI was 110.5 as of February 22, 2022, down from 111.1 in January. A CCI reading above 100 indicates consumer confidence has risen since the baseline CCI of 100 was established in 1985. In contrast, if the current CCI were lower than 100, it would indicate that consumers were less optimistic than in 1985. The Present Situation Index, which gauges the state of the economy and labour markets, increased from 144 in January to 145 in February 2022. The February Expectations Index, however, dropped from 88.8 the month before to 87.5 this month. According to the research, fewer customers anticipated making purchases of homes, cars, and appliances during the following six months. After slightly dropping in January and December from a 13-year peak in November 2021, worries about the economy's rate of price increases—known as inflation—rose once more in February. The current omicron variety and the coronavirus pandemic both remained alarming and, when combined with inflation, could have a detrimental effect on expenditure in the upcoming months.

Criticisms of the CCI

While the CCI is viewed as a leading economic indicator for the U.S. economy by the Organization for Economic Co-operation and Development (OECD), some members of the financial community view it as a trailing indicator. Leading indicators offer qualitative data that can be used to track the state of the economy and signal turning points in activity.

How the Consumer Confidence Index Affects You

Demand in the American economy is mainly driven by consumer confidence. People will purchase less if they are unsure of the future. Thus, economic growth is slowed. People are more likely to shop when they have a high level of future confidence. As a result, consumer spending—which accounts for about 70% of the US GDP—increases. The GDP also includes government spending, net exports, and company investments. People will spend more rather than save if confidence rises too much. It increases demand, which could lead to inflation.

The Federal Reserve will raise interest rates to halt it. Thus, economic growth is slowed. Additionally, it raises the dollar's value. Because they are now more expensive in international markets, this lowers exports. It reduces inflation by lowering the cost of imports. As a lagging indicator, the Consumer Confidence Index is used. It cannot accurately predict upcoming economic patterns, therefore. It does follow them. Most people don't notice a change in the economy until several months later.

For instance, even after a recession ends, nobody feels it. Many people remain jobless. Others had debt from spending money when they weren't working. The homes of several others have been lost. They are unsure if the economic environment has changed for the better. They might not understand there is no employment for six months. By then, they may have defaulted on their mortgage due to debt. The study also inquires about how simple it is to find work. Finding a job doesn't get challenging until the economy has shifted. That's because another lagging indicator is unemployment. Employers aim to avoid firing their staff members. First, they reduce all other expenses. The recession is already well underway by the time they start making layoffs.

Conclusion

Investors and stock market experts frequently closely monitor the consumer confidence index. They are trying to forecast if there will be an increase or decrease in the amount of money consumers spend. A rise of any kind can motivate businesses to spend more money to keep up with demand. Earnings and stock values rise as a result. For this reason, if the Consumer Confidence Index increases, investors are more likely to purchase equities. On the day the index is issued, the stock market has the potential to fluctuate significantly. However, this is more likely to happen when significant economic uncertainty exists. Investors are grateful for any additional information the Consumer Confidence Index may offer.