Surging Consumer Confidence Beginning to Drive U.S. Economy

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Consumer confidence, as to be expected, rises during growth periods and falls during recessions. Credit: Jashuah via Wikimedia Commons

Consumer confidence, as to be expected, rises during growth periods and falls during recessions. Image by Jashuah

I think; therefore I am —  René Descartes

The U.S. economy is an enormous, dynamic entity that moves and re-shapes itself on a regular basis.

New industries and technologies emerge, becoming key components, while others evolve or disappear over time.

For all the myriad, complex macroeconomic forces that comprise its mass (estimated at $15 trillion), there is one very simple factor that accounts for more than two-thirds of its growth: the collective psyche of its 315 million citizens.

Consumer Confidence Index

On its surface, it would seem almost impossible to quantify the aggregate spending plans of hundreds of millions of people. And yet, the Conference Board does exactly that by publishing the Consumer Confidence Index (CCI), which it describes as follows:

The Conference Board Consumer Confidence Index ® (CCI) is a barometer of the health of the U.S. economy from the perspective of the consumer. The index is based on consumers’ perceptions of current business and employment conditions, as well as their expectations for six months hence regarding business conditions, employment, and income. The Consumer Confidence Index and its related series are amongst the earliest sets of economic indicators available each month and are closely watched as leading indicators for the U.S. economy.

Consumer Confidence Methodology

The underpinnings of the index are based upon the answers to five questions distributed to random consumers through the Nielsen Company. Nielsen mails surveys to thousands of households monthly, utilizing logarithmic methods which ensure all income groups, age brackets and areas of the country are properly represented. The amount of surveys sent is sufficient to ensure 3,000 respondents.

The five questions are as follows:

  • Respondents’ appraisal of current business conditions
  • Respondents’ appraisal of current employment conditions
  • Respondents’ expectations regarding business conditions six months hence
  • Respondents’ expectations regarding employment conditions six months hence
  • Respondents’ expectations regarding their total family income six months hence

Respondents are given three choices per question: positive, neutral or negative. Results are seasonally adjusted, and the positives are divided by the sum of the positives and negatives to determine a ratio called the “relative value”.

The results are averaged together for each question and compared to a 1985 baseline, yielding the index value.

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