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Economic Indicators: The Consumer Confidence Index (CCI) Explained

   

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If you’re a forex trader, you face more reports, indicators, and surveyed data than you probably know what to do with. While there is plenty of data that traders should keep an eye on, the consumer confidence index represents especially important. To help you further understand the consumer confidence index, the following explains what it is and what it entails.

What Is the CCI?

The Consumer Confidence Index—commonly referred to as the CCI—is put out by The Conference Board, which serves as a measurement of the optimistic or pessimistic outlooks of consumers toward the economy with regard to the near future. The CCI’s concept is actually relatively simple, in spite of its data-driven nature. If consumers are feeling optimistic, they have a tendency to purchase more goods and more services, which in turn stimulates the economy. If customers are pessimistic, then sales of goods and services will fall, weighing down the economy in the process.

Key to Measuring Consumer Confidence

The consumer confidence index measures and details consumer confidence, which is the degree of optimism or pessimism toward the state of the economy. Consumers across multiple demographics express this pessimism or optimism through activities like spending money or saving it. The CCI, prepared and put out by The Conference Board, was calculated for the first time in 1985. The result of the original index was an arbitrary result of 100, which serves as the index’s benchmark. Now, the value adjusts monthly to represent the opinions of consumers on current economic conditions, as well as future economic predictions, determined through a household survey. Forty percent of the CCI report is made up of opinions on current conditions, while predictions make up the remaining 60 percent.

Data is available by age, region, and income, as well in the report. What this means is that when confidence of consumers trends upward, consumers spend more money, which in turn indicates that the economy is healthy. Confidence that trends downward, conversely, has consumers typically saving more, which indicates an economy in trouble. 

What Is the CCI Survey?

Every month, 5,000 households are surveyed by The Conference Board in order to generate the data that forms the CCI. The survey has five questions which cover the following subjects:

  • Current conditions of business
  • Current conditions of employment
  • Conditions of business for the upcoming six months
  • Conditions of employment for the upcoming six months
  • Family income total for the upcoming six months

Participants in the survey answer questions as negative, neutral, or positive. This forms the results of the CCI survey, which is released on the last Tuesday of every month.

How Is the CCI Calculated?

Once the data is gathered, the values are calculated separately for each question—the positive responses to the question are divided by the sum of negative and positive responses. Then, the value is compared against the benchmarks set in 1985. This results in the index value for the questions, which is obviously the key element within the report. The CCI is calculated for the U.S. in its entirety, as well as for each of the country’s nine census regions.

What Does the CCI Report Reveal?

The CCI report provides a key point of analysis for any forex trader. This is because it presents detailed data on a number key market influencing elements. Taking the latest CCI report as an example - released during February 2018 - it revealed that the index stood at 130.8, which was up from the prior month’s score of 124.3. The improvement in score had plenty to do with the perception of business, with 30.5% of those surveyed declared that conditions were “good”, as opposed to the 10.8% that felt that conditions were “bad”. Delving deeper, this appears to have had a direct influence on job market performance. 21.6% of those polled expected an increase in available jobs in the months to come, with there being a positive view of the labor market in particular, with 39.4% believing that jobs are currently “plentiful”.

The overall optimism was pretty clear within February’s CCI report, as consumers remained positive on the immediate outlook. The percentage of consumers expect business conditions to prosper over the next six months grew from 21.5% to 25.8%. While those anticipating business conditions to take a negative turn dipped from 9.8% to 9.4%. Taking an overall look at the CCI report, it’s evident that consumer feeling remains both positive and resilient. Optimism is strong, with this coming in spite of growing stock market volatility and political instability.

How Does the CCI Impact Forex Markets?

A strong CCI can move markets very quickly, especially if it comes when the economy is lagging. The idea that the consumer is looking to spend more money on bigger purchases ultimately leads to a stronger domestic economy, and therefore, a stronger currency. This report and its’ data, however, is highly subjective, and traders should interpret it as such.

Due to the subjective nature of the CCI, in addition to the small sample size in comparison to other surveyable reports, many economists will actually use moving averages between three and six months before they predict a shift in consumer confidence. Overall, however, rising consumer confidence will trend with rising retail sales, as well as personal consumption and expenditures—all of which are consumer-driven indicators that correlate with spending patterns.

Conclusion

Consumer spending is vital to a nation’s financial health, and the consumer confidence index is, as a result, one of the most accurate economic indicators, in addition to being one of the most closely-watched elements that can influence the forex. However, it is important to note that the CCI is a lagging indicator by definition, meaning that it doesn’t tell what is going to happen, but instead what has already transpired, and if it can be expected to continue in that fashion.

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Disclaimer:

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.

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