A:

Consumer confidence and consumer sentiment are very similar in that they both refer to the degree of confidence consumers feel about the overall economy and their personal financial state. Consumer confidence or sentiment helps predict the level of spending that consumers will engage in. A high level of consumer confidence means that consumers, generally feel good about their financial condition, especially their ability to obtain and keep jobs.

If consumer confidence is relatively high, then consumers are going to increase the amount of money that they spend. On the other hand, if consumer confidence is relatively low, then consumers are going to spend less. (See also: Consumer Confidence: A Killer Statistic.)

Consumer confidence is measured by two indexes: the Consumer Confidence Index (CCI) and the Michigan Consumer Sentiment Index (MCSI). The CCI is a survey conducted by a not-for-profit research organization for businesses called the Conference Board that distributes information about management and the marketplace. The Conference Board usually surveys 5,000 households from the country's nine census regions. The survey usually covers five major sections:

  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.

The MCSI is a telephone survey of 500 households conducted by the University of Michigan. The purpose of the survey is to collect information about consumer expectations regarding the overall economy. The MCSI also covers five sections:

  1. Personal financial situation now and a year ago
  2. Personal financial situation one year from now
  3. Overall financial condition of the business for the next 12 months
  4. Overall financial condition of the business for the next five years
  5. Current attitude toward buying major household items.

Although the surveys seek to provide a similar measurement of consumers' views on the economy, they often can and do diverge in the short term. This is due to a variety of factors:

  • The surveys are not always conducted at the same time during the month, so one may miss a significant economic event, such as a rise in gas prices, which would affect consumer outlook.
  • The two surveys query a dramatically different number of households. It stands to reason that the CCI, with 5,000 respondents, would be more sensitive. 
  • The scope of the survey differs, as well; the Michigan survey has significantly more questions and tends to yield more detailed information.
  • In terms of impact, the Conference Board survey tends to better pick up on indicators related to the job market, which the Michigan survey is more sensitive to pocketbook issues like the price of gas. 

This question was answered by Chizoba Morah.

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