Consumer Confidence

The Consumer Confidence Index measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. The primary measure shown here is the University of Michigan Consumer Sentiment Index.

Why It Matters

Consumer spending drives about 70% of U.S. GDP, so consumer confidence is a leading indicator of future spending. When consumers feel optimistic, they spend more freely; when pessimistic, they pull back.

Two Key Components

- Current Conditions: Assessment of present business and personal finances

- Consumer Expectations: Outlook for the next 6 months (forward-looking)

The expectations component is particularly important as a recession predictor.

Market Impact

Higher-than-expected confidence tends to support equities and the dollar, as it suggests robust consumer spending ahead. Declining confidence raises concerns about a spending pullback and potential GDP weakness.

Term Guide: Consumer Confidence Index

Consumer confidence measures how optimistic or pessimistic consumers are about the economy and their personal financial situation. Since consumer spending drives roughly 70% of U.S. GDP, these surveys are critical leading indicators.

Two Major Surveys

The Conference Board's Consumer Confidence Index (CCI) surveys 3,000 households monthly and is more labor-market focused. The University of Michigan's Consumer Sentiment Index (UMCSI) surveys 500+ consumers and emphasizes personal finances and inflation expectations. Both have 1966 as the base year (=100).

Key Sub-Components

- Present Situation Index: How consumers feel about current conditions (Conference Board) — correlates with employment

- Expectations Index: 6-month future outlook — a leading indicator; 3+ consecutive monthly declines often precede recessions

- 5-Year Inflation Expectations (Michigan): The Fed watches this closely; a rise above 3% raises alarm about inflation becoming 'unanchored'

Why Markets Care

A sharp drop in consumer confidence can foreshadow reduced spending, slowing GDP, and potential recession. The Expectations component of the Conference Board Index has correctly predicted 7 of the last 8 recessions when it drops below 80.

Historical Context

The Conference Board CCI plunged to 25.3 in February 2009 (its all-time low since the index began in 1967) during the Global Financial Crisis. During COVID, it dropped to 85.7 in April 2020. Michigan Sentiment hit 50.0 in June 2022 — its lowest in the survey's 70+ year history — driven by surging inflation fears.

Limitation

Sentiment surveys don't always translate to actual spending behavior. 'Vibecession' became a popular term in 2022-2023 when sentiment was deeply negative but consumer spending remained resilient.

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