DEFINITION of 'Expectations Index'

A sub-index that measures overall consumer sentiments toward the short-term (6-month) future economic situation, and is used to derive (about 60% of) the Consumer Confidence Index, a widely used economic indicator. The sub-index is compiled from data gathered from a survey of 5,000 households on questions regarding expected business and employment conditions as well as expected income in the near term.

BREAKING DOWN 'Expectations Index'

The Conference Board conducts this survey in which participants are asked if they feel that business conditions are expected to be better, worse or the same, and if they feel that employment and income is expected to increase, decrease or stay the same. Businesses use this sub-index to give themselves an idea about current market conditions, which allows them to make more informed business decisions. Once an appraisal for consumer expectations is conducted and a value calculated, it is combined with another sub-index called the Present Situation Index to form the Consumer Confidence Index. For example, if the survey showed business conditions, employment and income were expected to stay the same, business executives may decide to postpone investments in other projects for a later date.

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