Patricia Johnson: Consumer Confidence Index

Consumer confidence is considered an important economic indicator as consumer spending accounts for a major portion of U.S. economic activity. Consumer spending was running two-thirds, or 66% of GDP, but is now 70% of GDP. The level of consumer confidence can be directly related to consumer spending as the more confident consumers are about the economy; the more likely they are to spend.

Each month TNS NFO, headquartered in Greenwich CT, conducts the Consumer Confidence survey for The Conference Board. The survey is fielded from and results are processed at the TNS Northwood Ohio facility.

The survey originated in 1967 and was conducted on a bi-monthly basis through the middle of 1977, but from June 1977 forward the data has been collected monthly. Results are converted to an index and compared to the 1985 average of 100. During this 37-year period of time the five questions asked consumers have remained the same.

Samples are drawn from the TNS-NFO Access Panel of households and 5,000 surveys are sent by mail to individuals. The samples are balanced to be nationally representative according to U.S. Census figures, and are selected so that no household may receive the survey more than once over a 24-month period of time.

Approximately 3,500 completed surveys are returned to TNS-NFO each month and respondents are asked to appraise the following using a Positive, Negative or Neutral response.

1. Respondents’ appraisal of current business conditions.
2. Respondents’ expectations regarding business conditions six month hence.
3. Respondents’ appraisal of the current employment conditions.
4. Respondents’ expectations regarding employment conditions six months hence.
5. Respondents’ expectations regarding their total family income six months hence.

The three indexes are then averaged and calculated as follows:

“The response proportions to each question are seasonally adjusted. For each of the five questions (above) the POSITIVE figure is divided by the sum of the POSITIVE and NEGATIVE to yield a proportion, which we call the ‘RELATIVE” value. For each question, the average RELATIVE for the calendar year 1985 is then used as a benchmark to yield the INDEX value for that question. The Indexes are then averaged together as follows: Consumer Confidence Index: Average of all 5 Indexes; Present Situation Index: Average of Indexes for questions 1 and 3; Expectations Index: Average of Indexes for questions 2, 4 and 5.”

Source: The Conference Board

Seasonal adjustments are made by The Conference Board after receiving the data from NFO, and the indexes are released on the last Tuesday of each month at 10:00 a.m. EDT.

Consumer Survey responses received in August 2004 compared to July 2004 indicate
Consumer confidence has declined in all areas.

Preliminary results for the month of August, released August 31, 2004, indicate a major loss in all consumer confidence indexes as follows:

Although the Confidence Index took a 7.5% decrease in August, more than likely due to the paltry 32,000 new jobs reported by the Department of Labor for July, the index remains higher than the lows seen earlier this year.

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The highest point the Consumer Confidence Index ever reached was 144.7 in January of 2000 under the Clinton administration.

Patricia Johnson is a freelance writer and CEO of Articles and Answers. Visit us online at www.ArticlesandAnswers.com

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