Events That Might Change Consumer Confidence

Steve Bush By Steve Bush, 16th Sep 2014 | Follow this author | RSS Feed | Short URL
Posted in Wikinut>Money>Economics

Consumer spending represents a major portion of the economy in any country. Businesses and individuals often use consumer confidence studies to help plan their expenses and inventory.

How People Feel Can Impact Consumer Spending

Consumer confidence reflects how people feel about the economy. Consumer confidence studies are a scientific attempt to capture perceptions such as optimism or pessimism rather than measure actual economic results. Consumer confidence in the United States is commonly measured by monthly updates to the Consumer Confidence Index as calculated by the Conference Board. There are several specific events that can often change the level of consumer confidence either positively or negatively. This is especially important to business owners because consumer spending can increase or decrease as a result.

Here is a short (two minutes long) video that explains how consumer confidence is calculated and how businesses use the results.

Changes in Inflation

When you hear news about inflation, a common response is to think of the practical impact on your business or personal pocketbook. If inflation increases, you are likely to pay more for many goods and services. For example, if the cost of healthcare services and typical food products is increasing, consumer confidence is likely to be impacted negatively because spending more for these major purchase categories means less money available for other basic needs. Consider this practical definition of consumer confidence when thinking about the impact of inflation as well as other events noted below — “The degree of optimism on the state of the economy that consumers (like you and me) are expressing through their activities of saving and spending.”

Domestic Terrorism and Military Actions

When the attacks of 9/11 occurred, consumer confidence was negatively impacted in several ways. For example, discretionary travel purchases involving airlines was severely impacted for a lengthy period. Many airlines and travel-related businesses were forced to reduce their staffing levels. Subsequent military activities in Afghanistan and Iraq did result in increased military spending but did little to restore optimism about the economy.

Personal Employment Status

While monthly updates about national and state unemployment statistics can have an impact on consumer attitudes about the economy, changes in personal employment status are likely to have a more substantial and immediate impact on buying behavior. If you own a business and hear about increased unemployment, this is not as likely to change your optimism about the overall economy as news that your spouse was just laid off from a job that your family depends on for paying the monthly mortgage.

Rising and Falling Gas Prices

The Consumer Confidence Index is not the only measure of how people feel about spending. A key example is the Bloomberg Consumer Comfort Index. The primary event used to calculate this index is nationwide gas price performance. Because the Bloomberg Index reflects only whether consumers are spending more or less to fill up their tanks, this specific measure is often at odds with results reported by the Consumer Confidence Index. For example, consumer confidence showed modest improvement while the comfort index data continued a downward trend in one recent report. These conflicting results help to make a useful point — consumer confidence does not simply depend on one isolated event.

Elections and Statements by Politicians

Both political statements and actual elections can have an impact on how business owners and individual consumers feel about spending and the economy. However, many politicians are often limited to acting as a cheerleader for their constituents. There is ongoing debate about whether these factors are tantamount to temporary hiccups in the consumer confidence polling data or can have a longer-term impact on buying decisions.

Fluctuations in Investment Values

Investments such as stocks, real estate and precious metals can sometimes fluctuate erratically. Even if you do not own any assets, you might become either more or less confident about the economy based on recent news reports about how financial markets are performing. As with other events that might change consumer confidence, investment performance does matter if you think it will impact employment conditions, family incomes and business conditions.


Consumer Comfort, Consumer Confidence Index, Consumer Optimism And Pessimism, Consumer Spending, Economic Results, Employment And Unemployment

Meet the author

author avatar Steve Bush
Steve Bush is a business finance consultant and writer. He served in the military as an officer in the U.S. Navy Supply Corps. Bush obtained an MBA at the University of California, Los Angeles.

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