Consumer confidence is a closely watched and hotly debated economic indicator. Some analysts regard it as an exceptionally meaningful barometer and forecasting tool, and many cite it as a strong factor in stock market swings. Yet others question its fundamental validity. Can we trust gauges of consumer confidence? Just what do they measure? How do these measurements interact with economic conditions? Do movements in confidence correlate with other indicators, including personal spending? Is confidence a leading, lagging or coincident indicator of economic recession and recovery?
Here's what was reported in the Australian today - note what story they think the figures suggest:
Why don't you do some wide reading on the usefulness of Consumer confidence as a macro economic indicator...
6 comments:
How confident people feel about stability of their incomes determines their spending activity and therefore serves as one of the key indicators for the overall shape of the economy. In essence, if consumer confidence is higher, consumers are making more purchases, boosting the economic expansion. On the other hand, if confidence is lower, consumers tend to save more than they spend, prompting the contraction of the economy.
How is consumer confidence measured? What data and then how is the data computed/judged?
Dong have already answered the question 'how to measure the consumer confidence'. Making it more brief than dong's comment,
consumer confidence is measured by spending activity (in regards to their high/ or low income). Data computed is called Consumer Confidence Average Index, (CCAI). This is a monthly indicator that aggregates data from three major national polls on consumer confidence. It represents the rescaled average of Conference Board Consumer Confidence index, Reuters - University of Michigan Consumer Sentiment index and ABC News Consumer Comfort index.
http://en.wikipedia.org/wiki/Consumer_confidence
StateOfEconomy.com (CCAI)
"Can we trust gauges of consumer confidence?"
NO
Because gauge of consumer confidence (or CCAI) is designed through 3 main sources (previous comment), and are the only sources available to compute the consumer confidence it wont be precise enough to compare with the global consumer confidence index.
Need some help to improve my answer!
consumer confidence can be measured through consumer opinons and concerns and spending habits ie spending compared to saving, amount spent, when it is spent, prices etc.
The Consumer Confidence index, in the US, is calculated by conducting surveys across around 5,000 US households. The survey consists of five questions that ask the respondents' opinions about the following;
1. Current business conditions
2. Business conditions for the next six months
3. Current employment conditions
4. Employment conditions for the next six months
5. Total family income for the next six months
Survey participants are asked to answer each question as 'positive', 'negative' or 'neutral'.
Once the data has been gathered, a proportion known as the 'relative value' is calculated for each question separately. Each question's positive responses are divided by the sum of its positive and negative responses. The relative value for each question is then compared against each relative value from past years. This comparison of the relative values, results in an ‘index value’ for each question.
The index values for all five questions are then averaged together to form the Consumer Confidence Index.
I am not sure if this is similar to the process undergone in Australia. But I assume that a similar process of surveys and polls are used
http://www.pbs.org/newshour/bb/economy/consumer_confidence/
The report is suggesting that the Rudd Government’s cash handouts to people earning less than $100,000 has ‘buoyed the consumer mood’ – increased confidence. The more confident people feel about the economy and their jobs and incomes, the more likely they are to make purchases. The stimulus package, is being said to have assisted in this. Whereas declining consumer confidence is a sign of slowing economic growth and may indicate that the economy is headed into trouble. This is, in the end of the article pointed to, with other indicators pointing to a rise in unemployment. This shows that a Consumer Confidence Index on its own, as a macro economic indicator, is not completely reliable, and even may be misleading.
Despite the rise in consumer confidence due to the stimulus package, which would supposedly boost the economy, an eminent rise in unemployment, will drop this back, to ‘new lows’. From the article, it can be assumed, that more attention to protection of employment from the government, may be a more suitable means of stabilising the economy.
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