Understanding the Consumer Confidence Index

Imagine that you are talking with your neighbor in your backyard, and you mention you and your spouse are shopping for a new car, you are getting ready to refinance your house, and your spouse's brother recently lost his job. Your neighbor tells you they were recently promoted, their spouse is starting a business, and their daughter just bought a new computer. What kind of analysis about the health of the U.S. economy could an economist make based on your backyard conversation? Well, that depends on what the conversation suggests about consumer confidence.

The mention of recent or upcoming purchases of a computer and a car suggests strong consumer demand. Your plan to refinance your home is a positive sign for the future, implying you are confident in your ability to meet future mortgage payments. The refinancing suggests also the possibility of lower mortgage payments, which could mean an increase in your discretionary income. Your neighbor's promotion and the start of their spouse's new business are also positive economic signs. The only negative reference during the conversation was the mention of one person who recently lost a job. But from the other information exchanged between you and your neighbor, the economist might conclude consumer confidence is high. That is good news for the economy because, on average, consumers are responsible for two-thirds of the nation's economic activity, or the gross domestic product (GDP).

Key Takeaways

  • The Consumer Confidence Index (CCI) is a survey, administered by The Conference Board, that measures how optimistic or pessimistic consumers are regarding their expected financial situation.
  • The CCI assumes when consumers are optimistic, they will spend more and stimulate the economy, but if they are pessimistic then their spending patterns could lead to a recession.
  • The CCI is based on the Consumer Confidence Survey.

Consumer Confidence Index

Measuring Consumer Confidence

Consumer confidence, measured by the Consumer Confidence Index (CCI), is defined as the degree of optimism about the state of the economy that consumers (like you and me) are expressing through their activities of saving and spending. The CCI is prepared by The Conference Board with research conducted by technology company Toluna.

The CCS has used the same concepts, questions, and mail survey collection method since the series began in 1967. In the first decade, it was collected every two months. In 1977, it went to a monthly series and was benchmarked in 1985. It was initially conducted by mail but has been conducted online since 2010.

The value of the survey is adjusted monthly based on the results of a household survey of consumers' opinions on current conditions and future economic expectations. Opinions on current conditions make up 40% of the index (or two of the five questions), with expectations of future conditions comprising the remaining 60% (or three of the five questions).

On its website, The Conference Board defines the Consumer Confidence Survey as a "monthly report [detailing] consumer attitudes and buying intentions, with data available by age, income, and region." In the most simplistic terms, when their confidence is trending up, consumers spend money, indicating the sustainability of a healthy economy. When confidence is trending down, consumers are saving more than they are spending, indicating the economy is in trouble or in the process of contracting further. Essentially, the more confident people feel about the stability of their incomes, the more likely they are to maintain, or increase, their spending patterns.

CCI Survey

Each month The Conference Board surveys 5,000 U.S. households online. The survey consists of five questions about the following:

   Present Situation Index

  • Respondents’ appraisal of current business conditions
  • Respondents’ appraisal of current employment conditions

   Expectations Index

  • Respondents’ expectations regarding business conditions six months hence
  • Respondents’ expectations regarding employment conditions six months hence
  • Respondents’ expectations regarding their total family income six months hence

Survey participants are asked to answer each question as "positive," "negative" or "neutral." The results from the Consumer Confidence Survey are released on the last Tuesday of each month at 10 a.m. ET.

CCI Calculation

Once the data has been gathered, a portion known as the "relative value" is separately calculated for each question; each question's positive responses are divided by the sum of its positive and negative responses. The relative value for each question is then compared against each relative value from 1985, against which the index is benchmarked. This comparison of the relative values results in an "index value" for each question.

The index values for all five questions are then averaged together to form the Consumer Confidence Index. The average of index values for questions about the present form the Present Situation Index, and the average of index values for the future form the Expectations Index. The data is calculated for the United States as a whole and for each of the country's nine census regions.

CCI Interpretation

Manufacturers, retailers, banks and the government monitor changes in the CCI to factor in the data in their decision-making processes. While index changes of less than 5% are often dismissed as inconsequential, moves of 5% or more often indicate a change in the economy's direction.

A month-on-month decreasing trend suggests consumers have a negative outlook on their ability to secure and retain good jobs. Thus, manufacturers may expect consumers to avoid retail purchases, particularly large-ticket items that require financing. Manufacturers may pare down inventories to reduce overhead and/or delay investing in new projects and facilities. Likewise, banks can anticipate a decrease in lending activity, mortgage applications, and credit card use. When faced with a down-trending index, the government has a variety of options, such as issuing a tax rebate or taking other fiscal or monetary action to stimulate the economy.

Conversely, a rising trend in consumer confidence indicates improvements in consumer buying patterns. Manufacturers can increase production and hiring. Banks can expect increased demand for credit. Builders can prepare for a rise in home construction and government can anticipate improved tax revenues based on the consumer spending increase.

Consumer Confidence: A Leading or Lagging Indicator?

The next time you hear the results from the latest Consumer Confidence Survey, keep in mind some economists view consumer confidence as a lagging indicator, which responds only after the overall economy has already changed. The explanation for this delayed CCI reaction is it takes time for consumers to recover from and respond to economic events. The importance of a lagging indicator is it confirms a pattern is occurring. So, an increase in spending today may reflect the results of an economy that recovered a few months ago. Conversely, a decrease in spending today may confirm an ongoing recession.

Some economists also view the CCI as a leading indicator, since a rise or fall of the index is a strong indication of the future level of consumer spending, which accounts for close to 70% of the economy.

How Do You Interpret the Consumer Confidence Index?

The Consumer Confidence Index is benchmarked at 100. Readings above 100 suggest that consumers are more optimistic versus the benchmark. Readings below 100 suggest consumers are more pessimistic versus the benchmark. Readings that equal 100 suggest consumers are neutral in comparison to the benchmark.

What Does a Low Consumer Confidence Index Mean?

A low Consumer Confidence Index number tends to suggest that consumers are feeling less hopeful and more wary about the state of the economy — as expressed through their actions of saving and spending. However, the degree of pessimism and the degree to which the sentiment has changed month-to-month could be modest.

A month-to-month change of more than 5 points is considered significant, while smaller changes are considered to be less relevant. The index is benchmarked at 100 with anything lower than 100 noted as being on the negative side, but a figure below 75 is perceived as a more notable sign of pessimism. 

Why Is the Consumer Confidence Index Important?

The Consumer Confidence Index (CCI) is a record of how consumers feel about the current economy and where they think it is going. An online survey conducted by the Conference Board, the five question CCI is seen as a leading indicator and can be of use to corporations and economists tracking patterns of inflation and consumption.

The Bottom Line

Since consumer spending is so important to the nation's financial health, the Consumer Confidence Index is one of the most accurate and closely watched economic indicators. The index is based on a survey of five questions posed to 5,000 households, measuring their optimism on the economy's health. The CCI, however, is largely viewed as a lagging indicator, so whatever the survey says, remember it doesn't tell us what is going to happen, but what has already happened.

Article Sources
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  1. Federal Reserve Bank of St. Louis, FRED. "Table 1.1.6. Real Gross Domestic Product, Chained Dollars: Quarterly."

  2. The Conference Board. "U.S. Consumer Confidence."

  3. The Conference Board. "Consumer Confidence Survey Technical Note – May 2021."

  4. The Conference Board. "Consumer Confidence Survey® Technical Note – February 2011," Page 3.

  5. The Conference Board. "Business Cycle Indicators Handbook," Page 118.

  6. The Conference Board. "Consumer Confidence Survey Technical Note – February 2011," Pages 1-2.

  7. The Conference Board. "Consumer Confidence Survey® Technical Note – February 2011," Page 7.

  8. Bureau of Economic Analysis. "Table 1.1.10. Percentage Shares of Gross Domestic Product."

  9. The Corporate Finance Institute. "Consumer Confidence Index."

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