leading indicators of consumer spending that gauges public confidence about the health of the U.S. economy. Arandom sampling of 5,000 people are asked how they feel about business conditions, the labor market, consumer spending, economic growth, and their employment and financial expectations six months into the future.

The Consumer Confidence Survey : measures the level of confidence individual households have in the performance of the economy. Survey questionnaires are mailed to a nationwide representative sample of 5,000 households, of which approximately 3,500 respond. Households are asked five questions that include a rating of business conditions in the households area, a rating of business conditions in six months, job availability in the area, job availability in six months, and family income in six months. The responses are seasonally adjusted. An index is constructed for each response and then a composite index is fashioned based on the responses. Two other indexes, one for an assessment of the present situation and one for expectations about the future, are also constructed. Expectations account for 60% of the index, while the current situation is responsible for the remaining 40%. In addition, indexes for the present and future economic situations are calculated for each of the nine Census divisions. In the base year, 1985, the value of the index was 100.

The Conference Board also tracks consumer buying plans for the next six months. Among the items tracked are automobiles, homes, vacations, and major appliances. If the economy experiences a long-term expansion, buying intentions may decline even while the jobless rate declines because of the satisfaction of pent-up demand. Conversely, if inflation begins to accelerate, spending plans may increase for the short-term as consumers buy now to avoid having to pay higher prices later.

Consumer confidence correlates closely with joblessness, inflation, and real incomes. The growth of help wanted advertising as measured by the Conference Board has also been a strong contributor to consumer confidence. Rising stock market prices can also boost Consumer Confidence.

Related Indicators :

Consumer Confidence is important because Consumption spending represents about 56% of the GDP and is divided into three categories: durable goods (items expected to last more than three years), nondurable goods (food and clothing), and services. Other related concepts are those of Personal Consumption Expenditures and Retail Sales that are published monthly rather than quarterly.

Analysis of the indicator :

Strengths:  Data for a month is released during that month. Consumer Confidence is a leading indicator for the business cycle. Release provides information on consumer assessments of the present situation and expectations for the future. Improved expectations for the future indicate that consumers will be more willing to spend now or in coming months.
The survey is conducted not only nationally but also by the nine census divisions. The regional indexes reflect the economic situations in each region. The indexes can be compared across regions. Survey responses are segmented by household income and the age of the head of the household.

Weaknesses:  Consumers do not usually have the necessary information to accurately assess income and job growth six months hence. Release provides information on planned spending, which does not necessarily turn into actual spending, although it is unlikely that increasing consumer confidence would be followed by a decline in spending. The Consumer Confidence survey is not useful for any type of forecasting.

Consumer Confidence: Measurement and Meaning :

Introduction :

Consumer Confidence – a shorthand phrase for public views of economic conditions – is a closely watched, widely discussed and sometimes hotly debated economic indicator, all for good reason. Consumer spending accounts for about 70 percent of economic activity in this country (Bureau of Economic Analysis, undated). To the extent that consumer confidence interacts with consumer behavior, and with other economic factors, it may provide important information as to the economy's current condition and future direction alike.

This research synthesis examines in detail the three most prominent, ongoing indices of consumer confidence in the United States – the 58-year-old University of Michigan survey, the 37-year-old survey from The Conference Board1 and the 18-yearold ABC News/Money magazine survey. First we present a detailed comparison of the methodologies used by each of the indices. This comparison will be useful for those who regularly track the changes in confidence over time as well as for more casual observers. Second, we assess the fundamental reliability and validity of these three gauges. We examine how well they track with each other over time, their correlation with other economic indicators, their movement in advance of economic recessions and recoveries, and the relationship between consumer confidence and political sentiment. We are aware of no previous study that has compared the performance of the three main confidence indices across such a wide range of economic and political variables. More generally, it is not commonplace in survey research to have such long time trends that can be validated against objective measures.

Comparison of Confidence Methodologies :

"Consumer confidence" is in some ways a subjective term. There’s no single agreed-upon definition of what it means, nor one accepted method to measure it. Each of the Michigan, Conference Board and ABC/Money surveys regularly reports the results of an overall consumer confidence index. As this section details, even though these surveys all purport to measure the same construct, they differ methodologically in a number of ways, including sampling procedures, mode of interviewing, interview periods, question wording and index construction.