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CERC: EYE ON ECONOMICS
Consumer Confidence Measures
April 2014
CERC is a nonprofit corporation and public‐private partnership that provides our clients with objective research, marketing and economic development services. Our mission is to provide services consistent with state strategies, leveraging Connecticut’s unique advantages as a premier business location. Produced by the CERC Research Department ‐ Alissa DeJonge, Vice President of Research ‐ Carmel Ford, Research Analyst ‐ Matthew Ross, Research Associate CONNECTICUT ECONOMIC RESOURCE CENTER, INC.
CERC: EYE ON ECONOMICS
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TheConnecticutunemploymentrateinDecember2013reached7.4percentascomparedto6.9
percentinNewEngland,7percentintheNortheast,and6.7percentacrosstheUnitedStates.
Althoughalooselabormarketindicatesanimbalanceofthehiringandfiringofworkers,therearea
muchbroadersetofimplicationsthatcanresult.Manypoliticalpunditsusethetermviciouscycleto
describethenegativefeedbackloopsineconomicsystems.Althoughmoreoftenappliedtoinflation,
aviciouscyclecandescribehowalooselabormarketcanhaveanegativeimpactonoveralloutput
duetodecreasedconsumption.Thedecreasedconsumptioncouldresultinreducedsalesforfirms
whothendecidetoscalebackproductionandlayoffmoreworkers.InpreviouseditionsofEyeon
Economicswehaveexploredthelabormarketandthebusinesscycle,however,inthiseditionwe
willexploremeasuresofconsumerconfidence.
Consumerconfidenceisameasureofanindividual’sfeelingsaboutthecurrentstateofthe
economyandtherationalebehindtheircurrentpurchasingdecisions.Specifically,itisatoolused
togaugeconsumer’swillingnesstobuygoods.Anagent’slikelihoodtoengageinconsumptionis
basedonanumberofimportantfactorsthatinclude(butarenotlimitedto)currentlabormarket
conditions,inflation,andthemarketreturnonassets.Modernmacroeconomictheoryisbasedon
thepresumptionthatindividualsmakedecisionstodaybased,inpart,ontheirexpectationsabout
thefuture.Asaresult,itisnecessarytoaskindividualsquestionsthatpertaintotheirexpectations
aboutfutureeconomicconditionsinordertobetterassesstheircurrentpurchasingdecisions.
TherearefourmajorconsumerconfidenceindicesreportedintheUnitedStatesthatinclude:
NielsenandtheConferenceBoardConsumerConfidenceIndex
Summary:TheConferenceBoard’sConsumerConfidenceIndexisaconsumerindicatorthatseeks
todirectlymeasureconsumers’perceptionoftheoveralleconomyasmanifestedthroughtheir
spendingandsavingactivities.
Method:Address‐basedmailsampledesignthatisthenstratified.
Sample:Monthlysampleofabout3,000households.
Questionnaire:Fivequestionsincludingcurrentperceptionsofbusinessconditions,expectations
ofbusinessconditionsforthenextsixmonths,currentperceptionsofemploymentconditions,
expectationsofemploymentconditionsforthenextsixmonths,andexpectationsoftotalfamily
incomeforthenextsixmonths.
Design:TheConsumerConfidenceIndexwascreatedbyanon‐profitbusinessgroup(The
ConferenceBoard)in1967.
UniversityofMichiganandReutersConsumerSentimentIndex
Summary:TheUniversityofMichiganandReutersConsumerSentimentIndexisoneoftheleading
consumerconfidenceindicesandisincludedintheLeadingIndicatorsCompositeIndexpublished
bytheU.S.BureauofEconomicAnalysis.
Method:Listassistedrandomdigitdialingthatisthenstratified.
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CERC: EYE ON ECONOMICS
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Sample:Monthlysampleof500telephoneinterviewsfromthe48contiguousstatesthatarere‐
surveyedsixmonthslater.
Questionnaire:Fiftyquestionspertainingtofiveareasofinterestthatincludetherespondents
personalfinancialsituationinthelastyear,expectedpersonalfinancialsituationinthecoming
year,expectedfinancialconditionofbusinessesinthecomingyear,expectedfinancialconditionof
businessesinthenextfiveyears,andcurrentattitudesaboutmakingmajorhouseholdpurchases.
Design:ThesurveywasfirstdevelopedbyGeorgeKatonaattheUniversityofMichigan.
BloombergConsumerComfortIndex
Summary:TheBloombergConsumerComfortIndexisarollingfour‐weeksurveycreatedfroma
smallersamplethanothercomparableindicesbutreleasedatmorefrequentintervals.
Method:Randomdigitdialingthatisthenstratified.
Sample:Four‐weekrollingaverageof250telephoneinterviewssurveyedonaweeklybasis.
Questionnaire:Threequestionsincludingtherespondent’sperceptionofthenation’seconomy,
perceptionoftherespondent’sownfinancialsituation,andtherespondent’swillingnesstomake
purchases.
Design:ThesurveywasfirstissuedbyLangerResearchAssociatesanddistributedbyABCbefore
beingpurchasedbyBloomberg.
ConsumerConfidenceMeasures,2008‐14
Source:Varioussourcesdescribedintext.
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1M2008
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9M2012
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1M2013
3M2013
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3M2014
0
U.ofMichiganConsumerSentiment
ConferenceBoardConsumerConfidence
BloombergConsumerComfort
Additional Eye on Economics: www.CERC.com
CERC: EYE ON ECONOMICS
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Theastutereadermightalsowonderwhetherthesemeasuresofconsumerconfidencearean
accuratepredictorofactualconsumptionpatterns.AccordingtoCarroletal.(1994)measuresof
consumerconfidencehaveshowntocorrelatedirectlywithchangesinrealconsumption.The
authorsconcludethatconsumerconfidenceindicesmayhaveagreatdealofpredictiveforecasting
capabilities.1Thesefindingsprovideevidencethatshort‐termfluctuationsinthebusinesscycles
havedirectimplicationsonconsumers’willingnesstomakepurchases.Inaddition,Epprightetal.
(1998)discusshowconsumerconfidenceindicesareintrinsicallylinkedtoconsumers’willingness
topayandaffecteddirectlybyperceptionsabouttheeconomy.2
Zargorskietal.(1995)findthatconsumerconfidenceindicesreflectsubjectiveopinionsabout
economicconditionsandreflectchangingsocialconditions.3Theauthorsgoontoadvisethat
empiricalendeavorsrelyingonconsumerconfidenceshouldremovecomponentspertainingto
majorhouseholdexpenditureanddisaggregatethecomponentsbytemporalattributes.Caseyetal.
(2013)findevidenceofnegativitybiasinconsumerconfidenceindiceswhereconsumersreact
morestronglytonegativeeconomicfluctuationsthanpositiveones.4Theauthorsalsofindevidence
thataconsumer’sreferencepointmayhaveanimpactontheirwillingnesstomakepurchases.
Haugh(2005)findevidencethatconsumerconfidenceindiceshaveaparticularlystrongpredictive
powerintimesofeconomicdownturnwhenconsumersaremoredirectlyawareofnegative
economicconditions.5Thelong‐termpredicativecapabilitiesofconsumerconfidenceindices,on
theotherhand,arelesseasilyconfirmed.Al‐eydetal.(2009)findthatconsumerconfidenceindices
areweaklylinkedtopatternsofrealconsumptionwhenotherpreviouslyunconsideredvariables
areincludedintheempiricalanalysis.6Theyalsofindthatthisimplicationismorepronouncedin
thelong‐term.Theauthorscaveatthisresultbystatingthatconsumerconfidenceindicescouldhelp
policymakersunderstandcurrentperiodconsumptionpatternsbuthavelittlepredicativepower.
Carroll,C.andJ.FuhrerandD.Wilcox.“DoesConsumerConfidenceForecastHouseholdSpending,IfSoWhy?”.AmericanEconomic
Review.1994.
2Eppright,C.andN.ArgueaandW.Huth.“AggregateConsumerExpectationsIndexesasIndicatorsofFutureConsumerExpenditures”.
JournalofEconomicPsychology.1998.
3Zargorski,KrzysztofandJohnMcDonnell.“ConsumerConfidenceIndexesasSocialIndicators”.SocialIndicatorsResearch.1995.
4Casey,GregoryandAnnOwen.“GoodNews,BadNews,andConsumerConfidence”.SocialScienceQuarterly.2013.
5Haugh,D.“TheInfluenceofConsumerConfidenceandStockPricesontheUSBusinessCycle”.CAMAWorkingPaper3/2005.Australian
NationalUniversity.2005.
6Al‐eyd,AliandRayBarrellandE.PhilipDavis.“ConsumerConfidenceIndicesandShort‐termForecastingofConsumption”.The
ManchesterSchool.2009.
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