Consumer Confidence Vs. Consumer Sentiment: An Overview
Two of the most important numbers that investors listen for every month are based on surveys that aim at understanding and tracking the behavior and mood of the American consumer. Since about 70% of the American economy consists of consumer spending, it's understandable that their mood is a constant source of anxiety to American investors.
- The Consumer Confidence Index and the Michigan Consumer Sentiment Index are two sources of information on the current degree of optimism among American consumers.
- Both are published monthly.
- Together, they suggest whether the mood of consumers and their attitude towards spending is getting better or worse over time.
"Consumer confidence" and "consumer sentiment" are actually short-hand for two monthly surveys from different sources. Each aims at judging the degree of confidence that Americans feel about their current financial status and their expectations of change for the better or worse in the near future. In other words, do they feel free to spend?
The Consumer Confidence Index (CCI) is published by the Conference Board, a not-for-profit research organization for businesses. The survey is a sample of 5,000 households from across all nine census regions.
The survey usually covers five major sections:
- Current business conditions
- Business conditions for the next six months
- Current employment conditions
- Employment conditions for the next six months
- Total family income for the next six months.
The Consumer Confidence Index is released on the last Tuesday of every month.
The Michigan Consumer Sentiment Index (MCSI) is a national 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 Consumer Confidence number is published on the last Tuesday of the month.
The Consumer Sentiment number comes out around the 10th of the month.
The MCSI also covers five sections:
- Personal financial situation now and one year ago
- Personal financial situation one year from now
- Overall financial condition of business for the next 12 months
- Overall financial condition of business for the next five years
- Current attitude toward buying major household items
The Consumer Sentiment numbers are released around the 10th of each month.
Investors look at the results of both of these surveys the same way: If the number is up compared to last month, consumers should be willing to spend more money. If the number is down over last month, they're tightening their belts.
However, their results can and do diverge in the short term due to a number of factors:
- Both surveys are conducted monthly but not simultaneously. A sudden rise in gasoline prices or a drop in the stock market can affect the numbers.
- The Conference Board survey queries a larger sample, while the Michigan survey has more detailed questions.
Many who watch both numbers say that the Conference Board survey tends to be better at picking up on indicators related to the job market and job security, while the Michigan survey is a better measure of pocketbook issues like the price of gasoline.