When the consumer confidence index is greater than 100 prior to an election Americans tend to what?

The Consumer Confidence Index is a measurement of Americans’ attitudes about current and future economic conditions. It tells you how optimistic people are about the economy and their ability to find jobs.

Key Takeaways

• The Consumer Confidence Index is calculated by surveying 3,000 households about their feelings about business and employment situations and comparing their answers to 1985, which is used as the baseline.
• The Consumer Confidence Index is a lagging indicator, meaning it is better at following economic trends than predicting them.
• In July, the Consumer Confidence Index continued its downward trend, falling even more than economists expected. The index is at 95.7, a nearly three-point drop from the month prior. Consumers are most concerned with the current economic picture and are slowly losing faith in what is to come.

What Is the Current Consumer Confidence Index?

The Conference Board reported that the index was 95.7 in July 2022. That's still higher than it was at the depths of COVID-19 shutdowns.

Even with growing fears that a recession is looming, the index was still above its record low of 25.3 in February 2009. The record high is 144.7, which was last reached in May 2000.

The Board bases the index on a monthly survey of 3,000 households. The report gives details about consumer attitudes and buying intentions. It provides a national summary and a breakdown by age, income, and region of the country.

How Does the Consumer Confidence Index Work?

The Conference Board created the index in 1967. At that time, the survey was only conducted twice a month by mail and was calculated differently.

Now, confidence is measured through a survey that is conducted online and compared to answers from 1985. If the most recent index is above 100, then consumers are more confident than they were in 1985. If it's below 100, they are less confident than during that time.

The overall Consumer Confidence Index is a composite of two other indexes — the present situation index and the expectations index.

Present Situation Index

The Present Situation Index measures the response to two questions the survey asks:

• How would you rate the present business conditions? 
• What would you say about available jobs in your area right now?

For July 2022, this index was 141.3, down from 147.2 in June.

Expectations Index

The Expectations Index reports on respondents' predictions for business conditions and available jobs six months from now. It also measures whether those surveyed think their incomes will be higher, lower, or about the same in six months.

For July 2022, this index was 65.3, down from 65.8 in June.

How the Consumer Confidence Index Affects You

Consumer confidence is the primary driver of demand in the U.S. economy. If people are uncertain about the future, they will buy less. That slows economic growth. When trust in the future is high, people are more willing to shop. That increases consumer spending, which is almost 70% of U.S. gross domestic product. The other components of GDP are business investments, government spending, and net exports.

If confidence increases too much, then people will spend more instead of saving. It creates higher demand that could trigger inflation. To stop it, the Federal Reserve will raise interest rates. That slows economic growth. It also increases the value of the dollar. That reduces exports because they are now priced higher in foreign markets. It makes imports cheaper, which also reduces inflation.

The Consumer Confidence Index is a lagging indicator. That means it is not good at predicting future economic trends. If anything, it follows them.

Most people don’t feel that the economy has changed until months later. For example, even when a recession is over, people don’t feel it. Many are still unemployed. Others are in debt they incurred while they were jobless. Some others have lost their homes. They are uncertain whether the economic climate has improved.

Note

The lag also occurs when a recession begins. People still feel confident. It takes time before they lose their jobs or homes. Even if they’ve lost a job, they feel that they can find a new one as quickly as they did a few years ago.

It might take six months before they realize there aren’t any jobs. By that time, they’ve gone into debt and maybe defaulted on their mortgage.

The survey also asks how easy it is to find jobs. Usually, it doesn’t become difficult to find work until after the economy has turned. That’s because unemployment is also a lagging indicator. The last thing managers want to do is lay off their workers. They cut every other cost first. By the time they begin layoffs, the recession is already underway.

The Bottom Line

Investors and stock market analysts often monitor the Consumer Confidence Index closely. They want to get an idea of whether consumer spending will increase or decrease. Any rise can spur business spending to meet the demand. That increases earnings and stock prices. For that reason, investors are more likely to buy stocks if the Consumer Confidence Index rises.

The stock market can move dramatically on the day the index is published, but that will probably only happen if there is a lot of uncertainty about the economy. Investors welcome any added insight the Consumer Confidence Index can provide.

Frequently Asked Questions (FAQs)

What is considered a good consumer confidence score?

The Consumer Confidence Index uses the 1985 report as a baseline for comparison, because it was a solid 100. The score is relative, so anything above 100 means consumers feel more optimistic about the economy than they did in 1985 and anything below 100 means they feel less confident than in 1985.

Is the Consumer Confidence Index accurate?

The Conference Board takes surveys monthly, of over 3,000 households of varying demographic and socioeconomic data. The frequency of the report, large sample size, and diversity of data, do contribute to its accuracy, but as with all survey-based studies it is only an estimation. Observing changes in the CCI can be a useful economic indicator.

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