Consumer Confidence Index Effect on the Economic Activity

The markets react instantly to variations in the Consumer Confidence Index (CCI) that is used for measuring the level of consumer confidence in the economy. The index takes into account the consumer expenditure and savings. It is an important economic indicator as it depends on activities that account for more than two-thirds of the total economic activity.

The CCI was started by an independent global economic research group in 1967. The sample for the index extends to around five thousand families. TNS, a large research company conducts the survey that measures the opinion of the people about the present and the future economic situation every month. The CCI had jumped up in March after it had decreased in February. This is a good indicator for the economy.

Currently, the CCI is around 70, and an ideal figure of the index is around 90. If the CCI is higher, then the consumers have more faith in the economy and they are likely to spend more, which fosters economic growth.

In February 2010, the CCI had dipped to an all-time low figure of 25 due to the bad business conditions and increasing unemployment. Inflation was another reason for the decrease in CCI. Some of the factors that affect the CCI are the job market, income expectations, international events, business conditions and even weather.

The CCI impacts the markets as it is an indicator of the general sentiment of the consumers. For example, a positive response from the consumers at a time when the economy is not doing well would encourage investments in equities. This is because the consumers would be expected to spend more, which means that the companies are likely to grow with increased consumer spending.

Similarly, a bad CCI will make the investors consider withdrawing their investments from the markets. This would in turn cause the interest rates and the costs of credit to fall.

Various events of macroeconomic importance such as increase in oil prices or Greece’s debt crisis can drive the CCI down. The CCI is not always logical and is simply a refection of the consumer sentiment. But it is a valuable guide to consumer opinion and the most reliable sentiment indicator.

The consumers can help the economic growth during recession by spending more instead of stocking their money up. It helps the economy recover faster and the employment market to open up as businesses benefit from increased spending.

Speak Your Mind