In this week’s corner we will review the US Consumer Confidence Index published every month. There are other confidence indices such as this one that is published by the University of Michigan and others.

 

The Consumer Confidence Index is and indicator that measures the consumer’s confidence. This means – the level of optimism of consumers in that country, which is reflected in the consumer’s consumptions, savings and household expenses.

 

The U.S. index is published monthly by the Conference Board, an independent body for research in economics, and is based on a survey held on 5000 households across the U.S.

 

The importance of the U.S. survey is because it is based on the American consumer, who has the most output in the country. Even the FED monetary decisions are based on the index data.

 

The beginning of the Consumer Confidence Index was in 1967 and in 1985 the index was reset to 100.

1.      Current business status

2.      Business status in 6 months

3.      Current employment status

4.      Employment status in 6 months

5.      Total family income for the next 6 months

The respondents are asked to answer in “Positive”, “Negative”, “Neutral”.

Comparing with the S&P 500 (red line), you can see that there is a correlation and that in some cases the Consumer Confidence Index is ahead of the stock index and in other cases the stock index precedes the Consumer Confidence Index. This makes perfect sense.

 

Also in comparison to the U.S. GDP (Red Graph), it shows that it has a positive correlation between the indices. In the current crisis the Consumer Confidence Index preceded the decline in the GDP (Purple Line) and the rise (Blue Line).

A positive relationship (very nice) and a reasonable one appears against the bond yield for 10 years (Red Line) in the U.S. While there is low consumer confidence, the Flight to Quality phenomenon is expanding and consumers are rushing to buy the world’s safest bond.

 

Our examination VS the VIX index (red line) reveals an inverse association (not a bad comparison). When the VIX is at rising it means that the level of volatility in stocks is rising>>Investors fear rising thus you can see a decrease in the Consumer Confidence Index.

 

 

 

 

 

In conclusion, we examined the relationship between the Consumer Confidence Index and several currencies against the Dollar. This basket of currencies consists of 6 countries, where the Euro has the most impact. When the red graph is declining, the meaning is that the Dollar is weakening against the basket and vice versa. You can see that over the years there wasn’t a correlation between the indices, just because the Dollar weakened against the Euro on regular base. However, in contrast to the current crisis, you can see and inverse correlation between the two.

Consumer Confidence Index VS The Dollar

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