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8/6/2019 JF_Consumer Confidence Index Final
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Running Header: JEFF FORSTNER CONSUMER CONFIDENCE
Consumer Confidence Index
Productivity Paper
Jeff Forstner
Indiana Wesleyan University
MBA 651, ADM 524
Mr. Jay Taylor
May 3rd, 2011
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JEFF FORSTNER CONSUMER CONFIDENCE 2
This paper will discuss the definitions, trends, conflicts with other indicators, and effects of the
C.C.I. (Consumer Confidence Index). The C.C.I. is an economic indicator that is used to measure
consumer confidence in the United States. This index has been calculated by The Consumer
Confidence Board since 1967. The Nielson Company collects monthly input from 5000
households on five key areas: 1) current business conditions, 2) business conditions for the next
six months, 3) current employment conditions, 4) employment conditions for the next six months
and 5) total family income for the next six months. Each questions’ positive responses are
divided by the sum of its positive and negative responses. The current responses are compared to
the baseline comparison data in 1985 to form a relative value from 0 to 100 for each one of the
five areas. This leading indicator measures how confident consumers are about their job stability
and the state of the economy. It is considered a leading indicator because the readings have
proven to change ahead of economic changes. Table 1 (p. 7) shows how the real consumer
expenditure index follows the Consumer Confidence Index readings. Many economists feel that
this consumer confidence can cure most of what ails most economies.
There are two other leading indicators that measure consumer confidence. The University of
Michigan Consumer Sentiment Index is a similar measure with added focus on current attitude
toward buying major household items. The Washington-ABC News Consumer Comfort Index is
a simplified rolling average of 1,000 monthly telephone surveys providing ratings of; excellent,
good, not so good, or poor regarding national economy, personal finances, and buying climate.
There is also a Consumer Confidence Average Index that aggregates data from these three
indexes above.
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JEFF FORSTNER CONSUMER CONFIDENCE 3
Table 2 (p. 7) shows the Consumer Confidence Index ratings for the last 5 recessions. The
recession of 2001 had confidence as high as 101 to the lowest ranking of our last recession 2007-
2009 of 53.8. Table 3 (p.8) shows the Consumer Confidence Index for the last 35 years. The
current reading of 65.4, although a 3 month high and above the trough reading in 2008, is
significantly below the current regression level of 84.6. Index of 90 and above are considered to
be optimal and signal a healthy economy. In the April 26 th monthly update edition of dshort.com,
Doug Short compares the consumer confidence patterns of the past 18 months to that of the
pattern following the 1990-1991 recession, and also the period after the 2001 recession. He
found that all three periods lag due to a similar factor: slow jobless recovery. Another interesting
observation is that the regression trend for Consumer Confidence closely resembles the
regression for the GDP (Gross Domestic Product) history. When the G.D.P. dips, that usually
triggers layoffs, which trigger negative perceptions of job market, which in turn lowers the
Consumer Confidence Index. Mark Vitner, economist with Wells Fargo, remains cautiously
optimistic. “While the Index was an improvement, it doesn’t signal strength in the economy”, he
said. “Confidence is not likely to go up meaningfully until gas prices and unemployment come
substantially down” (The Fiscal Times).
Jennifer DePaul, an Editorial Producer for The Fiscal Times, further breaks down the current
Consumer Confidence Index in the April 26th edition. Perceptions that the economic conditions
were good, decreased slightly to 14.8 from 15 in previous months. The perception regarding the
statement that jobs are hard to get decreased to 41.8 from a previous 44.4 rating. Those that felt
that jobs were plentiful increased to 5.2% from 4.6% previously. Confidence that business levels
will improve decreased slightly to 18.8 % from 20.8%. Those expecting the labor market to grow
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JEFF FORSTNER CONSUMER CONFIDENCE 4
decreased to 17.5% from 19.6 % in a previous survey. Lastly, expectations of increased income
rose to 16.7% from 15%.
In Table 4 (p.9) February 2003 and February 2009 were the two time periods where there were
drastic variations between the C.C.I. and the Consumer Sentiment Index. One theory for the
variations could be that the C.C.I. was dragged down faster and lower due to the question about
the employment conditions, as those two time periods did show higher unemployment. Another
variation could be caused by C.C.I. survey’s question regarding total family income for the next
six months, which could also be significantly effected by layoffs. Bram and Ludvigson (1997), in
their paper comparing forecasting abilities of C.C.I. and University of Michigan’s Consumer
Confidence Index, found that the C.C.I. is a more reliable indicator. C.C.I. has a larger sample
size and therefore is not subject to as many errors. C.C.I. also captures a broader data range and
is therefore better for predicting a wider range of expenditures than The Consumer Sentiment
Index. Bram and Ludvigson did state that there is merit in utilizing both models in predicting
growth (p.20).
One other interesting forecasting tool that is coming into vogue is the use of Google Trends.
Schmidt and Vosen’s Forecasting (2007) paper discusses the potential benefits for business’ to
use Google trends to more accurately predict private consumption (November, p. 16). To use
Google data for forecasting private consumption, a time series of unobserved web inquiries are
recorded and charted. The technology is still too new to be a standard economic predictor.
Next, a discussion on how the C.C.I. affects the tire industry. Variation in the CCI levels will
cause manufactures and other providers of services to either ramp up or cut back. This will
contribute to the rising and falling of stock prices as well. In the case of extreme variations, the
Government will step in and issue a tax rebate or other fiscal action to stimulate consumer
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JEFF FORSTNER CONSUMER CONFIDENCE 5
confidence, which would encourage manufacturers to increase production. Table 5 (p. 10) shows
the direct correlation between Light Auto Sales and consumer confidence. When consumer
confidence is low and car sales are low, the replacement tire market should be growing due to the
repair of all the older vehicles that will continue to remain on the road. This would be the time
for tire wholesalers, like Dealer Tire, to stock up in order to be able to ship those replacement
tires to the dealers.
In the May 10th edition of Tire Business, Roy Armes, Chairman and CEO of Cooper Tire &
Rubber Company states that “consumer confidence eventually will improve, leading to improved
tire demand. However, gains will be modest, rather than a major upswing. There are low levels
of inventory across the entire supply chain at the moment, which offers an opportunity for
manufacturers to ship more tires.” It should also be noted that this pent up demand also opens the
door for tire manufacturer price increases. 2011 has already seen unprecedented price increases
in the neighborhood of 24%, levied by the industry as a whole during the last six months. In the
April 11
th
edition of Service Executive, they state that the main factor increasing vehicle
operating expense is the 15.7% increase in the price of tires. Even when customers face that
fateful day when their tread is completely gone, their confidence level in the economy will have
a direct effect on how many tires they replace and which price point they can afford.
In conclusion, The Conference Board’s Consumer Confidence indicator, even with its wider
movement of the index, biases, margin of error, and old technology, C.C.I. has stood the test of
time as the official and most recognized measurement of consumer confidence.
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References
Bram, Jason and Ludvigson, Sydney, (1997). Does Consumer Confidence Forecast Household
Expenditure? Domestic Research Function, Federal Reserve Bank of New York; New
York, NY.
Depaul, Jennifer, Consumer Confidence, The Fiscal Times (April 26, 2011)
Moeller, Tom. April 26, 2011U.S. Consumer Confidence Recovers, Haver Analytics, NY, NY
http://www.haver.com/comment/comment.html?c=110426c.html
Schmidt, Torsten and VosenRuhr Simeon, Forecasting Private Consumption:
Survey-based Indicators vs. Google Trends -Universität Bochum (RUB), Department of
Economics Universitäts str. 150, 44801 Bochum, Germany. November, 2009. ISSN
1864-4872 (online)
Schnorbus, Robert H., PhD. The National and Local Economic Outlook ,
The Federal Reserve Bank of Richmond. July 22, 2010. OCLS reference
Short, Doug. Conference Board Consumer Confidence Index, (February 10, 2010)
www.dshort.com
Fill rates are improving, Armes tells NETSA. Tire Business. May 10th 2011 by Crain
Communications Inc.
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Table 1 Consumer Confidence Recovers
http://www.haver.com/comment/comment.html?c=110426c.htmlTable 2
Consumer Confidence Index during past recessions
www.dshort.com
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Table 3
Vertical is Confidence Index rating and Horizontal is Year time line
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Table 4
www.rjomrt.com
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Table 5