What exactly is the Consumer Confidence Index? Why does it matter?
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In June, the Consumer Confidence Index rose to its highest level since the pandemic began last year. The latest report, released today, found consumers are optimistic about job openings and their own financial prospects.
What exactly is the Consumer Confidence Index? Who creates it? And why do we, or should we, pay so much attention to it?
On the last Tuesday of every month, a nonprofit think tank, The Conference Board, publishes the index based on an online poll. The poll asks about 3,000 consumers how they’re feeling about the economy right now, and for their feelings about the next six months.
On top of that: “We ask them about their buying intentions regarding homes, autos,” said Lynn Franco, senior director of economic indicators at The Conference Board, and about expectations for inflation, interest rates and stock prices.
The index has a baseline of 100. Anything over a hundred means consumer confidence is increasing. The June index came in at about 127, the highest since the pandemic began — though not as high as before it began. Still, that kind of optimism gets the attention of economists like Diane Lim, who writes the Economist Mom blog.
“You know, the Consumer Confidence Index matters a lot because consumers really are the engine of the American economy,” Lim said, noting that consumer spending is responsible for about 70% of U.S. economic growth.
The other unique thing about the Consumer Confidence Index is that it looks to the future. Most economic indicators, like the unemployment rate, use the rear view mirror.
“Think of it as a GPS that shows you the road conditions for the next six months,” said Robert Farrokhnia, who teaches finance at Columbia University. If confident consumers go out and spend the way they say they will, Farrokhnia added, the American economy will sizzle this summer.
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