Consumer ConfidenceICS
Consumer confidence surveys ask households how they feel about the economy, their finances and their spending plans. Examples are the Conference Board index and the University of Michigan sentiment survey in the US.
Consumer confidence measures how optimistic households feel about their finances and the economy. Because consumer spending is a big part of most economies, surveys such as The Conference Board's Consumer Confidence Index and the University of Michigan's sentiment index are watched as early signals of spending and growth.
- Category
- Fundamentals and Macroeconomics
- Reading time
- 3 min
- Also called
- Consumer sentiment, Consumer Confidence Index, Index of Consumer Sentiment
- Updated
Consumer confidence in plain words
The Conference Board's survey captures how consumers see business conditions now and over the coming months.1
The University of Michigan's surveys rest on a simple idea: how households spend and save helps steer the whole economy.2
When people feel secure about jobs and income they tend to spend more; when worried, they save.
How to read a confidence report
Pick the survey
In the US the two main ones are The Conference Board and the University of Michigan.
Split present and future
Read the Present Situation Index — consumers' view of business and job conditions today.1
Check expectations
Read the Expectations Index — their short-term outlook for income, business and jobs.1
Know the method
Michigan scores each question as the share of positive answers minus the share of negative ones, plus 100.3
Compare with forecasts
Markets react to the surprise versus consensus.
Confirm with hard data
Check retail sales and Nonfarm Payrolls before drawing conclusions.
Worked examples
Example 1 — Relative score
Score of 120In a hypothetical survey 45% answer favourably and 25% unfavourably.
| Favourable | 45% |
| Unfavourable | 25% |
| Relative score | 120 |
45 − 25 + 100 = 120: positive share minus negative share, plus 100.3
Example 2 — Falling expectations
Spending riskA hypothetical Expectations Index drops from 90 to 75 in two months.
| Start | 90 |
| End | 75 |
| Change | -15 |
A drop in expectations about income, business and jobs hints that spending may soften.1
Example 3 — Sample size
Treat with cautionA hypothetical analyst notes a 3-point monthly change in the Michigan index.
| Monthly change | 3 points |
| Sample | ~1,000 people |
| Verdict | Possibly noise |
With roughly 1,000 interviews a month, small changes may just be sampling noise.2
The two main US measures
| Aspect | Conference Board | University of Michigan |
|---|---|---|
| Name | Consumer Confidence Index | Index of Consumer Sentiment |
| Sub-indexes | Present Situation, Expectations | Current Conditions, Expectations |
| Emphasis | Jobs and business conditions | Personal finances and economy |
| Release | Monthly | Monthly, with preliminary read |
Where consumer confidence is used
Growth forecasts
An input for consumer spending and Gross Domestic Product.
Recession watch
Sharp drops can precede a Recession.
Inflation views
Surveys also capture Inflation expectations.
Sector trading
Retail and leisure stocks react to readings.
Advantages and disadvantages
Advantages
- Released quickly, before hard data.
- Captures mood and expectations.
- Long history for comparison.
- Expectations parts feed leading indicators.
Disadvantages
- Mood does not always match spending.
- Sample sizes are modest.
- Sensitive to headlines and politics.
- Different surveys can disagree.
Going deeper
Read as far as you need. Each level builds on the one before it.
Why mood matters
Beginner
Because household spending and saving shape the economy, sentiment is watched as an early clue.2
Present vs expectations
Intermediate
The Conference Board splits its index into a current-conditions part and an expectations part.1 The expectations part looks six months ahead.
Leading-indicator use
Advanced
Michigan's expectations measure is part of the US leading indicators index, so economists treat it as a Leading and Lagging Indicators signal rather than proof.2
Common mistakes
Overreacting to one month
Small moves can be noise.
Mixing up the two surveys
They use different questions and scales.
Assuming mood equals spending
People may spend despite gloomy answers.
Ignoring hard data
Check against Economic Indicator releases.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Consumer confidence tracks household optimism.
- The Conference Board and Michigan are the main US surveys.
- Expectations components look ahead.
- Readings are leading but noisy.
- Confirm with hard spending data.
Frequently asked questions
Is consumer confidence the same as sentiment?
Do markets react to it?
Is there a euro-area version?
Further learning
- Economic Indicator
How macro data are used.
- Leading and Lagging Indicators
Where confidence fits.
- Recession
What falling confidence can signal.
- Gross Domestic Product
The output consumer spending feeds.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- The Conference Board. Consumer Confidence (opens in a new tab) Checked .
- University of Michigan Surveys of Consumers. Survey Description (opens in a new tab) Checked .
- University of Michigan Surveys of Consumers. Index Calculations (opens in a new tab) Checked .
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