Consumer confidence is a term that describes the overall sentiment or attitude of customers towards the economy. The consumer confidence index (CCI) measures how confident people are about their ability to perform well economically in the future.
But what exactly is consumer confidence? How does it impact markets? What factors affect it? In this post, we’ll explore everything you need to know about consumer confidence.
Simply put, consumer confidence reflects how optimistic or pessimistic people are about their economic prospects. When consumers feel good about current and future economic conditions, they tend to spend more money. Conversely, when there’s uncertainty or fear surrounding economic stability, they’re more likely to save instead of spending.
The level of consumer confidence has far-reaching consequences for businesses and the economy as a whole. High levels of CCI indicate that people have faith in their financial situation which often leads them towards making purchases which can push up retail sales figures thus boosting business profits across various industries.
Low levels on onsumer cconfidence lead firmsenforced recessionv(i.e kess purchase power), whch triggers chain-reactions such as job cuts and foreclosure.the effect trickles down through different stages till hits an all-time low called recessioednt
High Levels --> Boost Business Profits Across Industries --> High Employment Rates --> Increased Govt' Revenue
Low Level - > Forced Recession -> Job Cuts-> Low Retail Sales Figures->DecreasedGov't Revenue
There are several methods used by researchers/professionals when measuring CCI one popular methods uses surveys collecting data from either online/offline questionnaire filling asking questions like :
Ones past personal finance state?
Predictions regarding
1. Personal Finance State
2.Economic Performance Of An Entire Nation*
3.Job Availability/Security
4.Opinions on relevant economic conditions affecting
a. Income
b. Debt
Economic indicators such as GDP, Retail Sales and Inflation affect customers’ moods towards the economy, which further budges their consumer confidence index.
Higher GDP Growth --> Boosts Household Savings-->& Increases Disposable Income -- > Higher CCI--> Increased Spending Capacity to Invest in Major Projects or Purchase Big Ticket Products Such As Houses/Cars
Lower GDP Growth --> Lower CCI Level -> Reduced Purchasing Power --> Lower Saving for Retirement- > Economic Stress
Inflation is another major factor that affects one’s level of consumer confidence. Why? It can erode spending power thus reducing consumers’ purchasing capacity leading t strategic cutting back i.e., only buying items deemed absolutely necessary, like groceries and everyday essentials.
Consumer purchases drive business growth in many industries; however, downturns also occur—when people lose faith in the economy altogether due to things like high unemployment rates or slow wage growth.(recessiion)
What happens when there are low levels of consumer spending?
Low sales revenue ---> Undercutting Business Profits ---> Infrastructures crumble Due To Lagging Investment In Key Sectors(Energy), reducedJob Opportunities .The negative effect bleeds over into job markets too, effectively amplifying a recession cycle and taking years to correct.
Understanding consumer confidence is essential when navigating dynamic marketplaces because it gives businesses an idea about current trends & sentiment that may eventually impact several areas including investments/customer loyalty/social mobility etc hence vital for creating successful marketing strategies over time.
1) The Psychology of Money: Timeless lessons on wealth,(Morgan Hausel)
2)“Consumer Confidence Index.” FRED Economic Data (2017).
3)Lipschutz, M. Winning Strategies for Power Presentations: Jerry Weissman Delivers Lessons on Strategy and Style (2nd Edition). Pearson FT Press.
4)"Consumer confidence falls in US and Europe due to COVID-19". (2020) Reuters
5) Consumer Confidence Index - Measurement And Impact Of Sentiment(Bytes Institute)
