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INFLATION RATE: The percentage change in the price level from one period to the next. The two most common price indices used to measure the inflation are the Consumer Price Index (CPI) and the GDP price deflator.

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CONSUMER CONFIDENCE INDEX:

A measure of consumer attitudes, preferences, and expectations concerning the state of the economy and business cycle conditions that is compiled each month by The Conference Board. The Conference Board is also responsible for compiling the leading, coincident, and lagging economic indicators. The Consumer Confidence Index is one of two primary measures of consumer attitudes. The other is the Index of Consumer Sentiment developed by the University of Michigan.
The Consumer Confidence Index is a notable measure of consumer attitudes that has consistently demonstrated its value as a predictor of future economic conditions.

This index is important to the notion that consumer expenditures are a critical component of aggregate demand for the macroeconomy. Changes in consumer confidence and attitudes affect consumer expenditures, which then affect the overall performance of the economy.

In other words, if consumers are more confident, then they spend more and the economy is likely to expand. If consumers are less confident, then they spend less and the economy is likely to contract.

Consumer Confidence Survey

The Conference Board sponsors a monthly Consumer Confidence Survey that is conducted with a randomly selected, representative sample of 5,000 U.S. households. Each household is asked five simple questions dealing with:
  1. An appraisal of current business conditions.
  2. Expectations of business conditions in six months.
  3. An appraisal of current employment conditions.
  4. Expectations of employment conditions in six months.
  5. Expectations regarding total family income in six months.
Each question has three possible responses--positive, neutral, or negative. The responses are converted into "relative" values by dividing the proportion of households responding "positive" by the total proportion of those responding either "positive" or "negative."

In addition to the five questions used to calculate overall consumer confidence, the Consumer Confidence Survey also poses questions dealing with intended purchases for automobiles, houses, and major appliances. Other questions inquire about vacation plans and expectations of inflation, interest rates, and stock market prices.

The survey is conducted in such a way that it provides reliable information that can be differentiated by age, income, and geographical location.

A Family of Three

The five questions are used to generate three separate confidence indices.
  • Consumer Confidence Index: This is the most noted index generated by the study. It is a simple average of all five consumer attitude questions indexed against the relative value for 1985. A Consumer Confidence Index of 85, for example, means that the current level of consumer confidence is 85 percent of the level measured in 1985.

  • Present Situation Index: This index is calculated as an average of the relative responses to questions 1 and 3. Both questions reveal how respondents feel about current business and employment conditions. It too is indexed against the relative value for 1985.

  • Expectations Index: This index is calculated as an average of the relative responses to questions 2, 4, and 5. These three questions reveal expectations that respondents have about future business and employment conditions and personal income. It is indexed against the relative value for 1985, as well.

<= CONSUMER CONFIDENCE, AGGREGATE EXPENDITURES DETERMINANTCONSUMER DEMAND THEORY =>


Recommended Citation:

CONSUMER CONFIDENCE INDEX, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: April 21, 2018].


Check Out These Related Terms...

     | Conference Board, The | Index of Consumer Sentiment | National Bureau of Economic Research |


Or For A Little Background...

     | business cycles | expansion | contraction | business cycle phases | business cycle indicators | leading economic indicators | coincident economic indicators | lagging economic indicators |


And For Further Study...

     | demand-driven business cycles | investment business cycles | political business cycles | stabilization policies | economic growth | full employment | potential real gross domestic product |


Related Websites (Will Open in New Window)...

     | The Conference Board | National Bureau of Economic Research |


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