The Consumer Confidence Index (CCI) is an Economic Indicator specifically designed to measure and examine consumer behavior from various economic factors that can influence decisions such as spending and saving. This indicator is one of the fundamental indicators that is quite important and tends to have a high impact on the movement of the country’s currency because this consumer activity affects the business and industrial activities of a country and will indirectly have an impact on the country’s economic growth rate.
The Consumer Confidence Index was first developed by George Katona in 1951 with the aim of implementing the CCI concept to find out consumer responses and perceptions about the situation of a business and job prospects. Then this CCI data was adopted by various countries to determine consumer optimism and pessimism about the economy. CCI data is released by developed countries based on surveys conducted by independent agencies and related governments. The CCI data release that traders pay the most attention to is the United States CCI as a developed country whose currency is most widely used for trading transactions.
Because it is carried out based on a survey, there must be several benchmarks that must be met, such as the survey method whether by telephone, questionnaire, email and so on, the number of samples that must be taken, the time period for the wurvey and so on. Questions in the survey must also be in accordance with macro and microeconomic conditions, namely the condition of the national economy and household economic (financial) conditions. In essence, changes in the consumer confidence index relate to the real conditions of society such as consumption, household income, public wealth (saving/investment) and interest rates.
Effect of Consumer Confidence Index (CCI) on economic growth
In simple terms, an increase in the value/CCI index indicates a country’s economic growth because consumer spending tends to increase, it will also indicate an increase in public consumption. The higher the level of consumer confidence regarding the country’s economy and job stability, the more consumers will buy the products produced by the company. Conversely, if the consumer confidence index decreases, it will reduce public consumption and this indicates that the country’s economy is slowing down or is experiencing problems.
CCI is also related to the value of a country’s currency, the higher the CCI index, the currency exchange rate will tend to strengthen and vice versa if the CCI index is low, the currency exchange rate of a country can weaken. The CCI index is also often the concern of business people such as investors, traders, banks, manufacturing businesses and even the government and is used for decision making. Usually, a change in the CCI index that reaches 5% is already a sign of a significant change in a country’s economic growth.
If the CCI Index continues to fall every month, it indicates that consumers are more careful in terms of spending and on guard when they lose their jobs, so many companies are postponing expansion and reducing production in anticipation of a worsening economy. In the end, the Central Bank will be motivated to reduce interest rates and the government will also reduce taxes to boost people’s purchasing power and make companies (business people) borrow more to increase production and expansion with the aim of spurring economic growth.
The Consumer Confidence Index is an index that shows how optimistic or pessimistic the people of the United States are about their economic situation. This data is published every last Tuesday of every month and is considered the most credible data in measuring the Consumer Confidence Index. The point is that if in one month the 31st is on a Saturday then Tuesday the 27th will be the date of the announcement of the results of this CCI survey. You can check it yourself for October 2020 the CCI data was announced on the 27th because it is the last Tuesday for that month. This is claimed to be one of the important indicators in measuring the health of the United States economy because it is based on a survey that measures how people view the current economic situation, as well as their hopes for the business world in the future.
Effect of Consumer Confidence Index on economic growth
One of the questions that arise when discussing the Consumer Confidence Index is “Why is the level of optimism or pessimism important for a society to measure the health of a country’s economy?” This is because one of the ideas used by the Consumer Confidence Index survey team is that when people are optimistic about the current and future economic situation, most of them have a tendency to spend more, whether it’s in family life or corporate life. Families will spend more, entrepreneurs will spend or invest more so that the economy grows bigger. However, if what happens is the emergence of a sense of pessimism in people’s lives regarding economic conditions, then there is a tendency for families and companies to try to save expenses so that the effect will also slow down economic growth as well as be the beginning of a recession.
How to get Consumer Confidence Index data?
In order to obtain data regarding the Consumer Confidence Index, a survey was conducted by the Conference Board, an economic think tank in the United States. This institution is a kind of non-profit association consisting of independent people so that it is trusted to be able to make valid and credible surveys regarding the Consumer Confidence Index. The survey was conducted to 5,000 families by asking 5 questions such as:
* Respondents’ assessment of current business conditions
* Respondents’ assessment of the latest job availability
* Respondents’ assessment of business conditions for the next 6 months
* Respondents’ assessment of job availability for the next 6 months
* Respondents’ expectations regarding their family’s total income for the next 6 months
To make it easier for respondents or survey participants they are advised to answer using three options, namely positive, negative or neutral. Later the survey results will be processed in such a way as to obtain a quantitative value compared to the 1985 Consumer Confidence Index, which became the benchmark. If the survey value exceeds the 1985 CCI value, the survey results will tend to be positive and if the survey value is below the 1985 CCI value, the survey results will tend to be negative.
