What’s the Consumer Confidence Index?

What’s the Consumer Confidence Index?

Why the Index is so important to your own business.

By Marcia Smith

The Consumer Confidence Index is a measure of how confident consumers are in the economy. In simple terms, confident consumers will spend more and participate more actively in the economy, whereas consumers who aren’t confident will tend to hold onto their money in order to provide a buffer between themselves and economic uncertainty.

The index in Europe and USA

The index is taken using a monthly survey designed to track various economic indicators. In the UK and Europe, the survey tracks changes in personal finance, inflation, unemployment, the general economic climate, the purchasing climate and consumer spending and saving. In the US, survey participants are asked to rate their feelings towards five different indicators as ‘positive’, ‘negative’ or ‘neutral’.

These indicators are ‘current business conditions’, ‘business conditions for the next six months’, ‘current employment conditions’, ‘employment conditions for the next six months’ and ‘total family income for the next six months’. In both cases, a value is calculated for each indicator. From these values, a single index number is then calculated which represents overall consumer confidence in the economy.

Forecasting customer behaviour

The Consumer Confidence Index is of great importance to your business because it acts as a forecast for customer behaviour. Using the Consumer Confidence Index, it’s possible to predict with some accuracy, how your customers are likely to behave over a given period. For example, if your business produces luxury goods and consumer confidence suddenly declines, this may serve as a warning that your customers are likely to spend less on your products until confidence is restored.

Similarly, if consumer confidence increases, you may be able to look forward to a period of greater prosperity for your business. In either case, you can budget accordingly and make informed decisions on such areas as whether or not to expand your business. In short, the Consumer Confidence Index is a vital predictive tool that allows you to make sound business decisions based on relevant, comprehensive economic data.