1

CONSUMER CONFIDENCECONSUMER CONFIDENCE

Presented By:Presented By:

Courtney CooperCourtney CooperSheyla MartinezSheyla Martinez

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What Is It?What Is It?

The index measures how consumers The index measures how consumers feel about the upcoming six months feel about the upcoming six months and their plans to make purchases and their plans to make purchases

(or not)(or not)

The Consumer Confidence Index is The Consumer Confidence Index is issued by the Conference Board.issued by the Conference Board.

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Consumer Confidence Measure Consumer Confidence Measure IndicatorIndicator

Frequency: Monthly ReportFrequency: Monthly Report Published by: The Conference Board, Published by: The Conference Board,

University of Michigan, ABC NewsUniversity of Michigan, ABC News Period coverage: variesPeriod coverage: varies Market significance: moderateMarket significance: moderate Leading indicator of consumer Leading indicator of consumer

spendingspending

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Measuring The IndexMeasuring The Index The Conference Board surveys 5,000 U.S. The Conference Board surveys 5,000 U.S.

households, each monthhouseholds, each month

The 5 questions ask opinions about:The 5 questions ask opinions about:1.1. Current business conditionsCurrent business conditions2.2. Business conditions for the next 6 monthsBusiness conditions for the next 6 months3.3. Current employment conditionsCurrent employment conditions4.4. Employment conditions for the next 6 monthsEmployment conditions for the next 6 months5.5. Total family income for the next 6 months Total family income for the next 6 months

The questions are answered as positive, The questions are answered as positive, negative or neutral.negative or neutral.

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Measuring The IndexMeasuring The Index The index values for all 5 questions are The index values for all 5 questions are

averaged, with weight, to form the averaged, with weight, to form the Consumer Confidence index.Consumer Confidence index.

The average values for questions 1 & 3 The average values for questions 1 & 3 form the form the Present SituationPresent Situation index. index. (weight = 40%)(weight = 40%)

The average values for questions 2, 4,& 5 The average values for questions 2, 4,& 5 form the form the ExpectationsExpectations index. index. (weight = 60%)(weight = 60%)

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Measuring The IndexMeasuring The Index

The relative value is calculated as each The relative value is calculated as each question’s positive responses divided by question’s positive responses divided by the sum of its positive and negative the sum of its positive and negative responses.responses.

The benchmark relative value, The benchmark relative value, 100100, was , was established in 1985.established in 1985.

The comparison between the relative The comparison between the relative value and the benchmark creates the value and the benchmark creates the index value.index value.

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Consumer Confidence U.S. RegionsConsumer Confidence U.S. Regions The index is calculated for the Unites States as a whole and for each of the The index is calculated for the Unites States as a whole and for each of the

country’s 9 census regions:country’s 9 census regions:

• New England:New England: Connecticut, Massachusetts, Maine, New Hampshire,Connecticut, Massachusetts, Maine, New Hampshire,Rhode Island, VermontRhode Island, Vermont

• Middle Atlantic: Middle Atlantic: New Jersey, New York, PennsylvaniaNew Jersey, New York, Pennsylvania

• South Atlantic:South Atlantic: Delaware, Maryland, Washington DC, Virginia, West Delaware, Maryland, Washington DC, Virginia, West Virginia, North Carolina, South Carolina, Georgia, FloridaVirginia, North Carolina, South Carolina, Georgia, Florida

• East North Central:East North Central: Ohio, Indiana, Illinois, Michigan, Wisconsin Ohio, Indiana, Illinois, Michigan, Wisconsin

• East South Central: Kentucky, Tennessee, Alabama, MississippiEast South Central: Kentucky, Tennessee, Alabama, Mississippi

• West North Central: Minnesota, Iowa, Missouri, North Dakota, South Dakota, West North Central: Minnesota, Iowa, Missouri, North Dakota, South Dakota, Nebraska, Kansas Nebraska, Kansas

• West South Central: Arkansas, Louisiana, Oklahoma, Texas West South Central: Arkansas, Louisiana, Oklahoma, Texas

• Mountain: Montana, Idaho, Wyoming, Colorado, New Mexico, Arizona, Utah, Mountain: Montana, Idaho, Wyoming, Colorado, New Mexico, Arizona, Utah, NevadaNevada

• Pacific:Pacific: Washington, Oregon, California, Alaska, HawaiiWashington, Oregon, California, Alaska, Hawaii

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9 Census Regions9 Census Regions

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Keys To Interpreting The DataKeys To Interpreting The Data

It is important that you look at the It is important that you look at the trend rather than the month to trend rather than the month to month change.month change.

Watching the trend will help cancel Watching the trend will help cancel out sapling errors.out sapling errors.

1010

The Consumer Confidence IndexThe Consumer Confidence Index

0

20

40

60

80

100

120

140

160

Jun-

97

Oct-97

Feb-9

8

Jun-

98

Oct-98

Feb-9

9

Jun-

99

Oct-99

Feb-0

0

Jun-

00

Oct-00

Feb-0

1

Jun-

01

Oct-01

Feb-0

2

Jun-

02

Oct-02

Feb-0

3

Jun-

03

Oct-03

Feb-0

4

Jun-

04

Oct-04

Feb-0

5

Jun-

05

Oct-05

Feb-0

6

Jun-

06

Oct-06

Feb-0

7

Recession

Job cuts

Terrorist attacks

WAR

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Latest Release - April 24, 2007Latest Release - April 24, 2007

The Consumer Confidence index The Consumer Confidence index decreased from 108.2 (March) to 104.0 decreased from 108.2 (March) to 104.0 (April)(April)

• The Present SituationThe Present Situation index decreased from index decreased from 138.5 (March) to 131.3 (April)138.5 (March) to 131.3 (April)

• The ExpectationsThe Expectations index decreased from 87.9 index decreased from 87.9 (March) to 85.8 (April)(March) to 85.8 (April)

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The Consumer Confidence Index The Consumer Confidence Index April 2006-2007April 2006-2007

94

96

98

100

102

104

106

108

110

112

114

Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07

108.2

104.0

109.8

1313

The Present Situation IndexThe Present Situation Index

0

20

40

60

80

100

120

140

160

180

200

Jun-

97

Oct-

97

Feb-98

Jun-

98

Oct-

98

Feb-99

Jun-

99

Oct-

99

Feb-00

Jun-

00

Oct-

00

Feb-01

Jun-

01

Oct-

01

Feb-02

Jun-

02

Oct-

02

Feb-03

Jun-

03

Oct-

03

Feb-04

Jun-

04

Oct-

04

Feb-05

Jun-

05

Oct-

05

Feb-06

Jun-

06

Oct-

06

Feb-07

1414

The Present Situation Index The Present Situation Index April 2006-2007April 2006-2007

115

120

125

130

135

140

Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07

138.5

131.3

136.2

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Latest Release – April 24, 2007Latest Release – April 24, 2007

The 1 year measure of consumer inflation The 1 year measure of consumer inflation expectations rose from expectations rose from 4.9%4.9% (March) to (March) to 5.2%5.2% (April) (April)

The EUR-USD is above the 1.36 markThe EUR-USD is above the 1.36 mark

The USD-JPY is under the 118.5 markThe USD-JPY is under the 118.5 mark

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Latest Release – April 24, 2007Latest Release – April 24, 2007

The number of people who planned to The number of people who planned to buy homes within 6 months decreased buy homes within 6 months decreased 0.5% 0.5%

- from 3.2% (March) to 2.7% (April)- from 3.2% (March) to 2.7% (April)

The number of people who planned to The number of people who planned to buy cars within 6 months increased 0.6% buy cars within 6 months increased 0.6% - from 5.4% (March) to 6.0% (April)- from 5.4% (March) to 6.0% (April)

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The Expectations IndexThe Expectations Index

0

20

40

60

80

100

120

140

Jun-

97

Oct-97

Feb-9

8

Jun-

98

Oct-98

Feb-9

9

Jun-

99

Oct-99

Feb-0

0

Jun-

00

Oct-00

Feb-0

1

Jun-

01

Oct-01

Feb-0

2

Jun-

02

Oct-02

Feb-0

3

Jun-

03

Oct-03

Feb-0

4

Jun-

04

Oct-04

Feb-0

5

Jun-

05

Oct-05

Feb-0

6

Jun-

06

Oct-06

Feb-0

7

1818

The Expectations Index The Expectations Index April 2006-2007April 2006-2007

78

80

82

84

86

88

90

92

94

96

98

Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07

92.3

87.9

85.8

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The Implied Job Strength IndexThe Implied Job Strength Index Correlates closely with joblessness, Correlates closely with joblessness,

inflation, and real incomesinflation, and real incomes

The difference between “jobs are The difference between “jobs are plentiful” and “jobs are hard to get” plentiful” and “jobs are hard to get” creates the Implied Job Strength index.creates the Implied Job Strength index.

This index decreased 4 points – from 11.4 This index decreased 4 points – from 11.4 (March) to 7.4 (April).(March) to 7.4 (April).

http://money.cnn.com/2007/04/24/news/economy/consumer_confidence.reut/

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Why Should We Care?Why Should We Care?

Consumer spending accounts for Consumer spending accounts for roughly two-thirds of our economy.roughly two-thirds of our economy.

Consumer consumption represents Consumer consumption represents about 56% of the GDPabout 56% of the GDP• Durable goods, non-durable goods, and Durable goods, non-durable goods, and

services.services. Consumer sentiment is a predictor of Consumer sentiment is a predictor of

how certain industries may do in the how certain industries may do in the coming months.coming months.

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What Will The Fed Do?What Will The Fed Do?

Although consumer confidence has Although consumer confidence has dropped, the Federal Reserve will not dropped, the Federal Reserve will not make any changes to the interest make any changes to the interest rate.rate.

They will continue to monitor the They will continue to monitor the changes in inflation.changes in inflation.

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THANK YOU!THANK YOU!