Why the Consumer Confidence Index Matters to Businesses (And Marketers)
Since 1967, the Consumer Confidence Index (CCI) has served as an economic weathervane, allowing economists, businesses and marketers a peek inside the hearts and minds of US consumers. The CCI offers a monthly gauge of how average Americans feel the economy is working and indicates how comfortable they are making purchases big and small.
The CCI might be a little wonkish, but it’s incredibly useful for making smart business decisions. From hiring to managing inventory to launching a new product or service, read on to find out why consumer confidence is important to the business cycle and how to use this report to forecast future economic trends.
Just What Exactly Is the Consumer Confidence Index?
The CCI is a monthly survey-based report conducted by The Conference Board, a non-profit economic think tank. For over five decades, the survey has posed the same five simple questions to 3,000 randomly selected American consumers to gauge how optimistic they are about the U.S. economy.
Each question asks respondents if they feel positive, neutral or negative about a specific aspect of the current or near-future (the next six months) economic climate. The data on the answers to the “current economic climate” questions are sometimes referred to as the Present Situation Index and the data surrounding the “next six months” questions are often called the CCI’s Expectations Index.
The Present Situation Index asks about respondents’ appraisal of:
- current business conditions
- current employment conditions
The Expectations Index asks about respondents’ expectations:
- of business conditions in the next 6 months
- of employment conditions in the next 6 months
- of their total household income in the next 6 months
Why Is Strong Consumer Confidence Important to an Economy?
The Consumer Confidence Report puts a finger on the pulse of consumers and their current and near-future spending. On a macro scale, a decrease in consumer confidence can predict that aggregate demand for products and services will fall. For households, this often identifies or foretells a decline in discretionary spending or reluctance to pull the trigger on big-ticket purchases like cars or appliances.
These high-dollar, long-lasting purchases are called durable goods; they have their own monthly report conducted by the Census Bureau.
For businesses, this can forecast a decline in revenue just around the corner. Shrinking income makes it harder to control inventory levels and may necessitate downsizing its workforce. Companies may also struggle to service debt payments.
Lagging or Leading?
The US Consumer Confidence Index is based on more than just a vibe. The aggregate of impressions and interpretations of 3,000 households provides a surprisingly accurate picture of the current US economy, though economists don’t always agree on what it means. Because consumers are influenced by events that already happened, some economists classify the CCI as a lagging indicator.
Other organizations, like the Organization for Economic Co-operation and Development (OECD), consider it a leading indicator because consumers are indicating whether they are confident (or pessimistic) in their financial situations to spend (or save) in the future.
Consumer Confidence vs. Consumer Sentiment
While these terms are sometimes used interchangeably, they’re actually two different surveys. The monthly Consumer Sentiment Index (CSI) is administered by the University of Michigan and asks seven questions of 500 households. The CCI and the CSI provide similar data, serving as twin barometers of the general state of the American consumer.
How to Use the CCI to Drive Strategy
Marketers can use Consumer Confidence Index numbers to inform forward strategy. Because the CCI is released every month, it provides a short-term indication of how consumers may behave in the next 30-60 days. Quarterly trends in CCI metrics may indicate a longer change in confidence.
Here’s how to read the numbers:
The index is measured from a benchmark of 100. As confidence increases, the index score rises. Pessimism causes the index score to decrease. In the wake of the Great Recession of 2008, the CCI fell from 100.9 in July 2007, when signs of the financial crisis became publicized, to 96.5 in June 2008.
In July 2023, the CCI reached a score of 117, marking a 0.6-point increase from the previous month and a year-long high, which indicates consumers are more confident than they have been all year about the economy.
It’s almost always the month-over-month variation that economists track – and you should, too.
The CCI can drop for any number of reasons, although a few factors tend to tip the scales. The main factors are:
- Changes in energy prices, especially gasoline
- Changes in personal employment or employment expectations
- Changes in consumer-facing interest rates, such as credit cards, personal loans, car loans and mortgage rates
- Changes in inflation
When CCI declines, businesses may slow or pause ordering, adjust revenue forecast, pause hiring or capital expenditures, or simply keep a closer eye on business performance.
When CCI increases, businesses can tap into that confidence by releasing a new product, offering additional promotions or ramping up their paid media efforts.
Marketing Doesn’t Happen in a Vacuum
Consumer confidence, savings rates and other economic variables play a key role in our market research services. We use macroeconomic data to provide real-world context to client reporting to put your product and business in perspective. It’s also useful to quantify seasonal trends or broader market shifts caused by new competitors and technology.
From CCI to SEO, We Can Help
We know what you’re thinking; the last thing you need right now is another acronym to remember. Count on Oneupweb to deliver a comprehensive view of your marketing efforts, from economic forces to landing page conversion rates. From 40,000 feet to sitting in the same room, get the context you need to make informed decisions – that’s what we bring to the table. Get in touch or call (231) 922-9977 today to start the conversation.