Consumer confidence is a metric of economic growth
Justin Kuepper, 21. Owner of JDK Commerce which provides consulting services; specializes in international investing. 11-14-21. “Consumer Confidence and Its Impact on the Markets.” https://www.thebalancemoney.com/consumer-confidence-and-its-impact-on-the-markets-1978947.
Economists solved the problem of measuring consumer confidence by developing what is now known as the Consumer Confidence Index (CCI). By questioning a statistically significant number of people residing within a given country using surveys, they aim to measure the degree of optimism that consumers feel about the overall state of a country's economy and their financial situation.2
When consumers are confident in their futures, they tend to spend money and drive economic growth higher. When consumers aren't confident, they tend to save rather than spend, which restricts economic growth. Therefore, international investors pay close attention to the information gathered in these surveys since it can serve as a great leading indicator for the overall economy.
How Consumer Confidence Surveys Work
There are many different types of consumer confidence surveys used worldwide, but most of them operate similarly. Based on a probability-designed random sample, the surveys ask a series of questions designed to assess the consumer's current and future outlook to capture their views of the economy and financial situation.
Questions typically cover things such as:
Current business conditions
Business conditions over the next six to 12 months
Current employment conditions
Employment conditions over the next six to 12 months
Total family income over the next six to 12 months
Participants are generally asked to answer each question as "positive," "negative," or "neutral," which are scored as 1, -1, and 0, respectively. Responses are added up to calculate a "relative value." This value is compared to a baseline "index value," which is often the initial value taken when the surveys first began.
Finally, these index values are averaged to produce an aggregate value that's commonly reported.3 The CCI survey is updated monthly by The Conference Board.2
The goal of consumer confidence surveys is to predict future consumer spending patterns, with the premise that more confidence leads to more buying and stronger economic growth.