What is Expectations Index
The Expectations Index is a component of the Consumer Confidence Index® (CCI), which is published each month by the Conference Board. The Expectations Index reflects consumers’ short-term — that is, six-month — outlook for, and sentiment about, the anticipated income, business, and labor market conditions for a given region.
Breaking Down Expectations Index
The Expectations Index comprises about 60 percent of the Consumer Confidence Index; the other 40 percent of the CCI is derived from the Present Situation Index. Unlike the Expectations Index, the Present Situation Index, as its name implies, is concerned with how consumers feel about a set of economic factors now, not what they think those factors would be like in the near future. Both indexes are generated from responses gathered by the Conference Board’s monthly Consumer Confidence Survey®. This survey polls 5,000 households about their attitudes toward prevailing business and economic conditions, and their thoughts about what may develop in the months ahead. Once the survey data for the present and expected conditions indexes are collected, the two sub-indexes are combined to create the complete Consumer Confidence Index, where the data are arranged according to age, income, and region, among other demographic factors. The CCI is widely regarded as the most accurate leading economic indicator for the United States economy.
How It Works
Participants in the Expectations Index portion of the Consumer Confidence Survey answer questions about whether, in the next six months, they expect business conditions to be better, worse, or the same; and if they believe that employment and income is expected to increase, decrease, or stay the same. Respondents can answer each question with one of three responses: “positive, negative, or neutral.” The survey also asks about participants’ spending habits and future buying intentions.
Expectations Index is a Critical Component of CCI
Because the Expectations Index may be used to gauge future trends, and may affect current decision-making behavior, it is the most important component of the Consumer Confidence Index; and businesses often use it to help make better-informed decisions or adjustments in strategy. For example, if the Expectations Index shows that consumers likely would not be spending more on discretionary travel during the next six months, then the leisure industry might not build new luxury hotels in that time frame. Or, if the Expectations Index indicates that business conditions, employment, and income likely would remain the same instead of rising over the next six months, then executives might decide to postpone investments in new projects until a later date.
For further insight into the Expectations Index and more examples about how it works, please see our article, Understanding the Consumer Confidence Index.