How Is It Computed?
The Conference Board’s Consumer Confidence Index began as bimonthly in 1967 and turned monthly in 1977. The index itself has been benchmarked to the year 1985 and assigned the reference mark of 100. What’s special about 1985? Nothing really. The purpose here was to anchor the index when the confidence level was neither at its peak, nor at its lowest point. It’s based on an attempt to survey approximately 5,000 households nationwide every month. Rarely, however, do that many respond. About 3,000 make it in time to be included in the preliminary release of the index. A month later, a revision is published. It includes another 1,000 or so late responses. In the end, though, the difference in outcome between the first report and the follow-up revision is usually insignificant.
Here are the key questions asked in the survey:
1. How would you rate the present general business conditions in your area? Good, normal, or bad?
2. Six months from now, do you think they will be better, the same, or worse?
3. What would you say about available jobs in your area right now? Plenty, not so many, or hard to get?
4. Six months from now, do you think there will be more jobs, the same, or fewer jobs?
5. What would you guess your total family income to be six months from now? Higher, the same, or lower?”
The Conference Board often throws in additional questions based on current economic conditions. For example, in a climate of falling interest rates, it might ask households if they plan to refinance their mortgage in the next six months.
With all the data in hand, the Conference Board produces three headline indexes, all of which are seasonally adjusted. One is the Present Situations Index, and it reflects consumers’ attitudes about current conditions. The second is the Expectations Index, which represents how consumers feel conditions might change in the next six months. Finally, you have the overall Consumer Confidence Index, which is based on a composite of the main five questions. It is weighted so that expectations make up 60% of the index while opinions about the current situation account for the remaining 40%.”
Excerpt From: Bernard Baumohl. “The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities, 3/e.” iBooks. https://itunes.apple.com/us/book/secrets-economic-indicators-hidden-clues-to-future/id547218470?mt=11