Why Consumer Confidence deserves much less attention<\/em><\/h2>\n

By Doug Stephens<\/p>\n

To say things have changed since 1967 is an understatement.\u00a0 Much of the technology we take for granted today was merely science fiction then.\u00a0 National economies, once bounded and distinct from one another are now inextricably connected and mutually reliant causing economic reverberations to travel at light speed from one continent to another. Companies performed with the long-term in mind and employment within them could be life-long. \u00a0The world was a very different place.<\/p>\n

All this begs the question, why are we still relying on the anachronistic <\/a>Consumer Confidence Index, developed 45 years ago, as our primary gauge of consumer sentiment and predictor of consumptive behavior?<\/p>\n

What is the CCI?<\/strong><\/p>\n

The Consumer Confidence Index<\/a><\/strong> was first implemented in 1967 by the Conference Board, to measure the consumer\u2019s outlook and comfort with \u00a0spending their money.\u00a0 Today, it\u2019s benchmarked to the year 1985, which was chosen as the baseline year for its relative stability compared to other years \u2013 it was neither a peak nor a trough economically.\u00a0 Each month a sample group of 5000 households are asked 5 very general questions to see how they feel about their economic situation.\u00a0 The current analysis – how they feel today – \u00a0makes up 40% of the index. How they feel about their future prospects make up the remaining 60%.\u00a0 So, in a sense, the CCI designed to be both a lagging and a leading indicator of the health of the consumer economy and the extent to which we, as consumers, are likely to spend.<\/p>\n

Not surprisingly, a tremendous amount of financial activity, stock trading volume and business investment strategy hinges on the monthly results of the index, which lately have resembled the ups and downs of an echocardiogram, as consumers struggle to truly understand their economic situation and future.<\/p>\n

\u00a0A Stone Tool in A Bronze Age<\/strong><\/h3>\n

When the index was conceived in the late 1960\u2019s it would have been infinitely easier for the average consumer to gauge their financial stability and job security. Foreign influences on our economy were fewer.\u00a0 Disruptive technology moved more slowly.\u00a0 And for much of the last 50 years, business cycles were longer and less turbulent \u2013 due in large part to the flattening influence of government intervention and monetary policy.<\/p>\n

Today, most experts agree that business cycles are shortening<\/a><\/strong> dramatically.\u00a0\u00a0 The ability of government to control swings with the kind of artificial stimulus that was prevalent from the 1980\u2019s to the mid 2000\u2019s has now all but dried up.\u00a0\u00a0 We are now at the mercy of the wind, so to speak. The result is likely more turbulent and decidedly unpredictable economic cycles. \u00a0Corporate outlooks are shorter-term. \u00a0 The notion of employer\/employee loyalty has become nostalgic. \u00a0And technology can sideswipe businesses and even entire industries without them ever seeing it coming.<\/p>\n

So, if the world\u2019s great economists can\u2019t agree on what\u2019s happening \u2013 much less what\u2019s going to happen, is it logical that the average consumer can do any better?\u00a0 And with a full 60% of the index\u2019s value based on consumer prognostication, it seems virtually engineered for inaccuracy.<\/p>\n

With nothing to replace it we can expect to live with the Consumer Confidence Index for the foreseeable future but given its inherently archaic premise, perhaps we should be giving it a lot less air time.<\/p>\n","protected":false},"excerpt":{"rendered":"

Why Consumer Confidence deserves much less attention By Doug Stephens To say things have changed since 1967 is an understatement.\u00a0 Much of the technology we take [\u2026]<\/span><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[216,122,24,23],"class_list":["post-1662","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-consumer-confidence-index","tag-economics","tag-retail","tag-trends"],"yoast_head":"\n