What Is Consumer Confidence?

The Consumer Confidence Index may be closely monitored by retailers, economists and industry experts who are trying to gauge the overall health of the economy, but what a confidence index is supposed to measure and what it actually measures may, in fact, be two very different things.

The Conference Board released it latest Consumer Confidence Index earlier this week and Americans’ confidence in the economy, it seems, is rather low. The index says that consumer attitudes fell to 50.4 in July from 54.3 in June due primarily to concerns about the current job market, a drop that has experts speculating that our economy is about to take a dive.

The Conference Board uses five questions to quantify how 5,000 participants feel about the current job market, business conditions and where both will be in the next few months.  The University of Michigan’s puts out a similar rating each month. It’s Index of Consumer Sentiment asks 500 people four questions in an attempt to measure essentially the same thing.

Both sets of questions are written in the third person; they don’t ask consumers to talk about how they feel about themselves specifically. Instead, participants are asked to assess the state of the economy now and how they think conditions will be, in general, six months from now. There are only three possible answers the participants can give to these questions: positive, negative or neutral. At no point are answers about personal spending habits solicited.  

This can be problematic since how a person feels about the general population doesn’t always dictate what they are going to spend. Consider, for example, a recent MetLife study in which 48% people worried about making ends meets, but they still lent money to struggling family members.