Consumer Confidence Update

Consumer Confidence Data Released

The Consumer Confidence Index (CCI) provides insight into consumers’ assessments of the labor market, as well as business activity, financial conditions and people’s willingness to spend. It also provides opinions on both (1) the current state of affairs (Present Situation Index) and (2) future estimates (Expectations Index), which are needed to make any type of investment decision.

Consumer spending accounts for more than two-thirds of the economy. Therefore, it’s important to gauge how individuals might behave in the near future. Banks, manufacturers and retailers are also closely watching the index, which can inform them on whether to take on additional financing, rethink overhead, or advance/delay business investment. Among those that also keep an eye on the figures are government officials and Fed leaders, who factor in whether additional fiscal or monetary action is needed to balance the economy.

Slight month-on-month fluctuations are normal, but index changes of more than 5% – or a continuous trend in one direction -may be indicative of a likely path of where the economy is headed. The indicator has been steadily decreasing since notching a score above 115 last December, barring two readings in August and September that prompted hopes of an uptrend. Today’s number is forecast to come in at a reduced 100.0, from October’s 102.5, though any figure above 90 generally reflects a healthy economy.

How is it calculated? The Consumer Confidence Index is the result of a survey of 5,000 U.S. households that is prepared by The Conference Board, a non-profit known for its private sources of business intelligence. Survey participants across America, and each of the country’s nine census regions, are asked to answer questions with responses like “positive,” “negative” or “neutral.” Once the data has been collected, a portion known as the “relative value” is calculated for each question (which is compared to the sum of the responses and historical data to produce a final index value).

The Results

U.S. consumer confidence fell for the second straight month in November amid ongoing high inflation, rising rates, and corporate layoffs.

The Conference Board reported Tuesday that its consumer confidence index fell to 100.2 this month, down from 102.2 in October. November’s figure is the lowest since July. This may partly be a reflection of an uptick in gas prices earlier this fall. Since then, however, gas prices have since reversed and fell to $3.52 a gallon, on average, nationwide on Tuesday. That’s down from $3.76 a month ago.

Americans are taking a more negative view on the economy. Before the pandemic, the index regularly topped 120 with the cost of food, rent, clothing, and other essentials surging.

Inflation is near the worst in four decades, increasing 7.7% in October from a year earlier.

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Despite the gloomy outlook, however, many Americans are still spending, fueling a generally healthy start to the winter holiday shopping season last weekend.

The business research group’s present situation index, which measures consumers’ assessment of current business and labor market conditions, dropped slightly to 137.4 from 138.7 in October.

And the board’s expectations index, a measure of consumers’ six-month outlook for income, business and labor conditions, declined to 75.4 from 77.9 last month.

Americans spent heavily on Black Friday and over the post-Thanksgiving weekend. Spending on Black Friday jumped 12% compared with a year ago, according to MasterCard Spending Pulse.

And during “Cyber Monday” earlier this week Americans increased their online spending by 5.8% from a year earlier.

Consumers may not be able to sustain solid spending growth for much longer. A rising number of households are relying heavily on credit cards to keep up with inflationary prices on a number of goods. And many are also dipping into savings, which rose sharply during the pandemic, as government stimulus checks and the postponement of spending on travel and entertainment boosted the average American’s bank account.

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