What Is the Consumer Confidence Index?

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Feb. 6 2001 4:56 PM

What Is the Consumer Confidence Index?

Recent surveys portray consumers as a bunch of economic sad sacks, their confidence draining month after month. Just who conducts consumer confidence surveys, and what do they measure?

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The most widely cited surveys are the Consumer Confidence Index, released monthly by the Conference Board, and the Indices of Consumer Sentiment and Consumer Expectations, conducted monthly by the University of Michigan. All measure how consumers feel about their own current financial situation, that of the overall economy, and their expectations for both in the near future.

The Conference Board, a nonprofit business-improvement organization founded in 1916, started surveying consumer confidence in 1967. Each month out of a pool of 120,000 pre-selected, representative families, 5,000 are sent a questionnaire. About 3,500 families return the five-question survey, which asks them to rate as positive, negative, or neutral current business conditions, their expectations of conditions six months from now, their current employment situation, employment expectations in six months, and expectations in six months for total family income. The board then comes up with a number representing consumer confidence indexed to a baseline of 100 used in 1985. (Don't you remember how confident--yet not irrationally so--you were in 1985?) This January's index dropped 14 points to land at 114.4. It was the fourth decline in a row and one of the sharpest downturns since a drop from July to August of 1990 signaled that recession. The highest the index ever reached was 144.7 in both January and May 2000. The lowest was 43.2 in December 1974. While consumer predictions are more about psychology and self-fulfilling prophecy than hard numbers, since consumer spending is such a large part of the economy, the index is seen as a good indicator of where things are heading.

The University of Michigan has been surveying consumers since 1946. Each month it conducts 500 telephone interviews with representative families asking about 50 questions on everything from their personal economic situation to expectations for the coming year to whether this is a good time to buy a refrigerator or a car. Michigan's Index of Consumer Sentiment reached an historic high of 112 in January 2000. At one of its lowest points, it plunged to about 53 in 1980. This January the index continued a six-month drop to land at 94.7. The decline is similar to ones in 1980 and 1990 that anticipated those recessions.

Explainer thanks Lynn Franco of the Conference Board and reader Sundara Murphy for suggesting the question.

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