Business

Investors keep an eye on the Consumer Confidence Index to gauge current economic conditions:


The latest indicator of the strength of the US economy arrives this morning at 10:00 a.m. ET. The Consumer Confidence Index provides insight into consumers’ assessment of the labor market, as well as people’s business activity, financial conditions, and willingness to spend. More importantly, it provides opinion about both the current state (Current Situation Index) and the estimated future (Expectations Index), which are needed to make any type of investment decision.

Larger image: Consumer spending accounts for more than two-thirds of the economy, so it is important to assess how individuals may behave in the near future. Banks, manufacturers and retailers are also very interested in changes to the index, which could tell them whether to continue with further funding, reconsider operating costs or advance /defer business investment or not. Among those also monitoring the metrics are government officials and Fed leaders, who consider whether more fiscal or monetary action is needed to balance the economy.

Slight monthly fluctuations are normal, but an index change of more than 5% – or a continuous trend in one direction – can indicate the direction of the economy. The indicator has been steadily declining since scoring above 115 last December, with the exception of two readings in August and September that boosted hopes of an uptrend. Today’s number is forecast to fall to 100.0, from October’s 102.5, although any number above 90 usually reflects a healthy economy.

How is it calculated? The Consumer Confidence Index is the result of a survey of 5,000 US households prepared by The Conference Board, a nonprofit organization known for its private business information sources. Survey participants across the United States and each of the nation’s nine census tracts were asked to answer questions with responses such as “positive,” “negative.” or “neutral”. Once the data has been collected, a portion known as the “relative value” is calculated for each question (compared with the sum of the responses and historical data to produce the figure “index value”. ” final).

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