Consumer confidence, measured by the CCI, is the degree of optimism on the state of the economy that consumers make known through saving and spending.
Did you hear that consumer confidence is the highest it’s been in a year? Everyone’s optimistic about jobs, too. Well, that’s what was announced last Tuesday.
The gauge of U.S. consumer confidence rose to 70.8 in February from 61.5 in January. A prior estimate for January pegged the level at 61.1.
Now, depending upon where you live and/or your employment situation, you may have a few choice words for these numbers and this optimism. But before the rant, we need to delve into what all this means and how we can use it.
The first thing we need to do is familiarize ourselves with the Conference Board.
The Conference Board connects some 2,000 companies via forums and peer-to-peer meetings to discuss what matters to companies today: issues such as top-line growth in a shifting economic environment and corporate governance standards. However, the Conference Board is best known for its widely followed economic indicators, particularly the Consumer Confidence Index (CCI).
Consumer confidence, measured by the CCI, is the degree of optimism on the state of the economy that consumers make known through saving and spending.
This value is adjusted monthly on the basis of a household survey of consumers’ opinions on current conditions and future expectations of the economy. Opinions on current conditions make up 40% of the index, with expectations of the future comprising the remaining 60%.
The Conference Board defines the Consumer Confidence Survey as “a monthly report detailing consumer attitudes and buying intentions, with data available by age, income and region.”
Each month the Conference Board surveys 5,000 U.S. households. The survey consists of five questions that ask the respondents’ opinions about the following:
Survey participants are asked to answer each question as “positive,” “negative,” or “neutral.”
The results from the Consumer Confidence Survey are released on the last Tuesday of each month at 10 AM EST.
Here’s a general rule of thumb: When confidence is trending up, consumers tend to consume. From a healthy level of spending, we then extrapolate that to a healthy economy. When confidence is trending down, consumers are saving more than they’re spending, indicating the economy may be experiencing some bumps in the road.
Consumer spending is the largest portion of the economy, and economists watch confidence readings to get a feel for the direction of spending.
And that confidence can be derived from job stability. The idea is that the more confident people feel about the stability of their incomes, the more likely they are to buy stuff.
“Consumers are considerably less pessimistic about current business and labor market conditions,” said Lynn Franco, Director of the Conference Board’s Consumer Research Center. “Despite further increases in gas prices, they’re more optimistic about the short-term outlook.”
Economists polled by MarketWatch had expected a reading of 64.5 for February on improving employment figures and higher stock prices.
When you consider that consumer spending makes up about two-thirds of the U.S. GDP, this can be interpreted as a pretty bullish indicator. No matter where you live or what your employment predicament is, maybe there’s hope that we – as consumers – are coming around and an economic recovery is taking hold, even with rising costs at the pump.
Good Investing,
Jason Jenkins
Article by Investment U