The consumer confidence index or CCI, or the indication of the consumers’ reliance upon their economy, is among the top crucial economic indicators that are used in various factions of financial markets and also to measure certain aspects of any given economy.
The significance of the consumer confidence index for traders, especially for forex traders, is that this indicator is among major economic indicators that are taken into account in fundamental analysis. And of course fundamental analysis will take a look at the economy as a whole to understand how the economy is doing and how this will all eventually impact the market in question.
In this article we want to fully analyze the consumer confidence index and see what it means, what type of economic indicator it is, how it is calculated, and what its impact is for you as a forex trader.
Leading and Lagging Economic Indicators
Before we discuss the consumer confidence index itself, we first need to talk about a notion regarding economic indicators.
In the classification of economic indicators, we can see that there are two major kinds of indicators. One type is known as lagging indicators. And another is called leading indicators. But what are they? And under which category does the consumer confidence index fall?
- Lagging Indicators: this type of indicators, as their name suggests, have a lag or delay in their representation of economic data. You need to provide a time period for them to gather data first. And then they use the gathered data to provide insights regarding the past movements in the market – hence lagging indicators.
- Leading Indicators: on the other hand, leading indicators are those that use the present data and information available in the market in order to provide insights on the upcoming movements in the market. So as their name suggests, leading indicators are used for leading or providing predictions about the future and not analyzing the past.
So what about the consumer confidence index?
Well, this one might be for you to decide. The reason for this is that certain economists and experts believe that the consumer confidence index is a lagging indicator while others are of the opinion that it is a leading indicator.
But you can see which one it is once we blast off our discussion about CCI. One more stop before doing that. Let’s discuss the organization behind CCI.
What Is the Conference Board (CB)?
In case of the many economic indicators, whether they are lagging or leading, the entity behind their issuance is actually the government in charge of that economy. But this is not true for the consumer confidence index.
In fact, there is a single organization behind CCI called the Conference Board or CB for short.
The Conference Board is a nonprofit organization that was founded over a century ago in 1916. The headquarters of the Conference Board is located in New York City in the United States. As of now, its legal status stands as a 501 nonprofit.
Furthermore, the Conference Board comprises more than 2,000 public and private companies and firms. These organizations are actually from more than 60 countries around the world.
The Conference Board releases data regarding consumer confidence index on a monthly basis by administering a survey on a quite large basis. But more on that in the next section.
The Basic Definition of the Consumer Confidence Index
So far we learned about different types of economic indicators. We also learned about the organization behind the issuance of the consumer confidence index (CCI).
After all, what exactly is the consumer confidence index?
As was mentioned, the consumer confidence index is actually a survey that is carried out by the Conference Board. This index is used to measure the degree of optimism or pessimism among the consumers in any economy.
The most important knowledge that can be gained through the figure or rate of the CCI is that if consumers do indeed have optimism regarding their economy, this will entice or push them to increase their expenditure, thus stimulating the economy further into development.
On the other hand, if there is pessimism on the side of the consumers with regard to their economy, this will mean that they do not have enough incentive to spend nor definitely increase their expenditure. This can push the economy into a bad place, indeed even a recession.
A Closer Look at the Consumer Confidence Index
There are certain aspects of the CCI that set it aside from other economic indicators. First of all, it is consumer based. It means this is directly related to the consumers themselves. Secondly, while certain indicators might be released on a quarterly or annual basis, the consumer confidence index is released on a monthly basis by the Conference Board. In fact, CCI is released on the last Tuesday of every month.
Another peculiarity of the consumer confidence index, as touched upon earlier, is the fact that it is not released by the governments. It is, rather, released by certain organizations. One such organization, and indeed the largest one, is the Conference Board. However, there are also other organizations that are in charge of publishing this information. For instance, in the United States, the reputable survey company Nielson is also among the organizations releasing such data.
Lastly, the CCI is a survey and only a survey. In fact, respondents are only asked 5 simple questions about the economy. 2 out of 5 questions are about the currency status of the economy, and 3 out of 5 questions are regarding the upcoming movements or what the consumer expects to come.
A Look at the Latest Consumer Confidence Index
The latest consumer confidence survey was carried out in June 2023 by the Conference Board. And the results?
To discuss the results, let’s see how the CCI is announced.
There is a yardstick or benchmark against which CCI is measured and announced. The benchmark was obtained in 1985 and is taken to be 100.
This means any CCI above 100 is indicative of optimism among consumers and any CCI below 100 is indicative of pessimism among consumers.
The latest consumer confidence index in June 2023 was 109.7 which shows optimism among consumers with regard to the economy. In fact, it shows a growth of a few points from 102.5 back in May 2023.
The consumer confidence index is an economic measure that shows how much confidence consumers have in their economy. The figure gained through CCI is either above 100 or below 100. Above would mean consumers are optimistic and below would mean consumers are pessimistic.
CCI can be regarded as both a lagging and leading indicator if it takes into account the past performance of the economy and it also predicts the future of the economy. The release of the CCI data has a serious impact on the market as a whole and can change prices, thus impacting even forex traders who are trading in the foreign exchange market.