Consumer Sentiment – How is the Economic Health Measured?

Keywords – Consumer Sentiment – Consumer Confidence Index  – Economic Sentiment Indicator – Economic Sentiment Index – Consumer Sentiment Index 

Have you ever thought how is the economic health measured?

More specifically, have you ever thought how individualised financial decisions affect the overall economic system?

There are multiple indicators of financial health. One such indicator is ‘consumer sentiment’.

Consumer Sentiment

Consumer sentiment is a statistical measurement of consumer opinion.

Given that consumer spending makes up most of the financial movement within an economic system, e.g. 75% of GDP in the US, consumer sentiment and opinion is an effective way of measuring economic health. 

In addition, markets have been known to react directly to consumer sentiment, i.e. when the sentiment is positive, markets have been known to surge up, and vice versa. 

Specifically, the objective of the consumer sentiment is:

  1. Assessing consumer attitudes
  2. Forecasting national economy
  3. Measuring consumer expectations
  4. Gauging future spending behaviour
  5. Judging consumer’s level of optimism and/or pessimism

So, how is consumer sentiment expressed?

CCI and CSI

Consumer Confidence Index (CCI) and Consumer Sentiment Index (CSI) are both based on household surveys. The only main difference between them is the development sources.

Consumer Confidence Index was developed by the Conference Board, while Consumer Sentiment Index was developed at the University of Michigan. 

At a more elaborate level, in Europe, the CSI is based on five specific factors. These include: Industrial Confidence Indicator; Services Confidence Indicator; the CCI; Construction Confidence Indicator; and Retail Trade Confidence Indicator. We will cover each of the 4 other topics in coming blogs. 

To make use of the indexes though, the main focus is on the trend of the developed graph, spanning multiple months. Any interpretation that considers a specific month can be highly misleading.

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