Consumer Confidence Index at 50 Year Low

The economic research organization The Conference Board issues releases of the US Consumer Confidence Index, and its recent June release has confirmed a dip in the degree of optimism consumers have in the economy. This measure of consumer confidence in savings and spending is based on a survey of 5,000 households, and consists of five questions: 1. Current business conditions 2. Business conditions for the next six months 3. Current employment conditions 4. Employment conditions for the next six months and 5. Total family income for the next six months.

The Index is now 50.4, down from May’s 58.1. Those claiming bad business conditions have increased to 32.5 percent from 29.7 percent, while those claiming good business conditions declined to 11.5 percent from the 13.0 percent in May. Likewise, those expecting business conditions to worsen over the next six months increased and the percent of consumers expecting fewer jobs in the months ahead also increased. The proportion of consumers expecting their incomes to increase also declined.

So what are the major effects of the Consumer Confidence Index? When the confidence index goes up, this indicates that people feel more secure about their jobs and incomes, signifying a growing economy. Manufacturers would take this as a chance to increase production and hiring, banks would expect an increased demand for credit, while the government can expect improved tax revenues. However, in case of a low consumer index such as the recent release, manufacturers can expect consumers to avoid retail purchases. Consumers and financers are finding themselves more careful in considering what to purchase

“Stocks sank Tuesday, with investors cringing at reports showing that high fuel costs are hurting consumer confidence and corporate profits,” says Madlen Read of Mercury News.

However, others take a more positive outlook. According to the Conference Board’s director of consumer research Lynn Franco, the “silver lining to this otherwise dismal report is that consumer confidence may be nearing a bottom.”

Another reliable measure of consumer index is The University of Michigan Consumer Sentiment Index which is released by the University of Michigan’s Institute for Social Research.