What Is Consumer Sentiment?

Consumer sentiment is a statistical measurement of the overall health of the economy as determined by consumer opinion. It takes into account how people feel about their current financial health, the health✃ of the economy in the short-term, and the🍬 prospects for longer-term economic growth. It is widely considered to be a useful economic indicator.

Consumer sentiment emerged as an economic statisಌtic during the mid-20th century and has since become a barometer that influences public and economic policy.

It is considered a lagging indicator because it ta🍰kes people several months to notice and feel the effects of changes in economic activity.

Understanding Consumer Sentiment

In the U.S., 澳洲幸运5官方开奖结果体彩网:consumer spending makes up a majority of economic output. As of the second quarter 2024, an estimated 67.7% of 澳洲幸运5官方开奖结果体彩网:gross domestic product (GDP) was driven by personal consumption expenditures, which is the main measure of consumer spending.

Why It's Important

So the 💃sentiment, or attitude, of consumers about their financial well-being and spending, and the future of both, is very important in gauging the health of the economy.

If people are 🌊confide♛nt about the economy, they are likely to feel confident about their jobs and finances. This can lead them to shop and spend more, which in turn boosts the economy.

In contrast, when consumers are uncertain or worried about what lies ahead, they tend to save money and make fewer 澳洲幸运5官方开奖结果体彩网:discretionary purchases. Gloomy sentiment weakens demand for goods and services, which impacts corporate investment, the 澳洲幸运5官方开奖结果体彩网:stock market, and employment opportuniti✨es, among🌸 other things.

Importantly, very bullish consumer sentiment can also be bad for the economy. When people and businesses buy lots of goods and services, prices can rise significantly, leading to an unwelcome rise in 澳洲幸运5官方开奖结果体彩网:inflation.

To stamp out inflation, central banks hike interest rates, which leads to an increase in borrowing costs for both consumers and businesses. This tends to slow borrowing, spending, and economic growth. It also weighs on exports as higher interest rates strengthen 💫the value of currencies and make a nation's products more expensive for consumers in other countries.

Measures of Consumer Sentiment

Two key measures that reflect consumers' feelings about the economy and their plans to make purchases are the Consumer Confidence Index (CCI), prepared by the Conference Board (CB), and the 澳洲幸运5官方开奖结果体彩网:Michigan Cons♈umer Sentiment Index (MCSI), published by the University of Michigan. Both indexes are based on household surveys and are reported on a monthly basis.

澳洲幸运5官方开奖结果体彩网:Investors also believe consumer sentiment is important. They closely follow consumer sentiment indexes as they provide a useful indicator of how 🅷much demand there is for the goods and services produced by companies listed on the stock market.

How to View the Data

Though both indexes are announced monthly, when analyzing the data, it is important to determine trends graphed out over a longer time frame, such as four or five months. Otherwise, you won't have the proper context with which to draw conclusions.

The media ☂often shines a light on changes from one month to the next or compared to the previous month or against the same month the prior year. Comm💯entary that focuses only on single period values, without looking at the trend, is misleading.

Special Considerations

For many, the💟 importance of trends in consumer sentiment rests in the fact that the CCI originated in the middle of the 20th century when the concept of a typical consumer was more homogeneous.

Acknowledging this historical fact, as well as potential sampling bias and possible subjectivity across regions, the safe bet is to focus on trends forming some sort of linear progression, whether upward or downward. Otherwise, the progression can hit a general plateau, which sometimes happens when the economy shifts to different stages in the business cycle.

The Bottom Line

Consumer sentiment reflects how people feel about the state of the economy and their own finances. Generally, the stronger that consumer sentiment is, the more likely people are to feel confident about their financial futures and spend money. This spending supports the nation's economic health.

Consumer sentiment is measured by the Consumer Cജonfidence Index (from the Conference Board) and the Consumer Sentiment Index (from the University of Michigan).