Microeconomic Indicator in FOREX:
Consumer Confidence Index
What is the Consumer Confidence Index?
The Consumer Confidence Index is basically the measurement of confidence people have on the current economic conditions of the nation and how positive they are on the future growth of the country. It determines the optimism people have over them finding jobs and having a bright future if they continue to reside in the country. The base index of CCI is 100 and anything above 100 means the people are optimistic about the country’s economy and the index below 100 explains they are pessimistic. If the CCI of a country is high, people in the country are confident about their current income and future growth which will eventually increase their spending ability. If the consumer spending is more, automatically it will have a strong positive impact on the economy as a whole.
Consumer Confidence index is determined by the Conference Board by surveying over 5,000 households in the country which is known as the Consumer Confidence Survey. This survey determines a total of three indices. One being the Present Situation Index, this determines the present business conditions in the economy. The second one is the Expectations Index, which explains the prediction of respondents on them finding jobs or increase or decrease in their income levels in the next six months. CCI is then calculated by amalgamating Present Situation Index & Expectation index in the proportions of 40% & 60% respectively.
What does CCI measure?
Consumer Confidence Index measures the optimism or pessimism people have over the economy of the country. CCI is a lagging indicator, which means it is a consequence of the economic output. If people are confident about their future, they will spend more and if they are doubtful they will spend less. This will eventually have a direct impact on the economy as consumer spending is the maximum contributor to a country’s GDP. For instance, 70% of the entire U.S. GDP comes from consumer spending alone.
Reliable sources of information on ‘Consumer Confidence Index’ for Major currencies:
There is a lot of information with respect to the CCI of different countries in the sources provided below. You can familiarize yourself with the CCI of the respective country along with the historical data related to that. You can also compare the Consumer Confidence Indices of one country to the other using this web portal. The graphical representation of the historical data will give you a clear understanding of how this data changed over time. You also get to change the graphical representations according to your preference. A ton of more information related to the latest news in that regard is provided to give you a better understanding.
GBP (Sterling) – https://tradingeconomics.com/united-kingdom/consumer-confidence
What do traders care about the Consumer Confidence Index and its impact on the currency?
Consumer confidence is an important driver of demand in any country’s economy. If people are uncertain about the future, they tend to spend less and save more. This affects economic growth as most of the country’s GDP is derived from consumer spending. If the GDP gets affected, it will eventually affect the value of the currency. Hence traders should keep a watch on these numbers to effectively forecast the future of a country’s economy. More than just looking at the current month’s index numbers it is better to check the trended data to derive valuable insights on the same.
Frequency of the release
CCI report is generally released on a monthly basis by the Conference Board in the U.S. Respective governments has different boards to calculate and publish the CCI statistics of that country. For example, CCI of Japan is calculated by their Cabinet office. Even though the CCI statistics are released on a monthly basis for all the countries, the dates they are published are slightly different. For the U.S. this data is published on the last Tuesday of the current month, while for Australia this data is published on the second or third Wednesday of the current month. The CPI publish dates of each of the countries are different due to changes in the organizations that undertake the surveys and compiles the data to calculate the indices.
The Bottom Line
Financial confidence is a key indicator of consumer spending and it accounts for a majority of overall economic activity. Consumer confidence, in particular, is very important in the retail sector and luxury goods industries as most of their revenues are highly dependent on the consumer spending patterns. This index can also be used to measure the effectiveness of monetary policy designed by the central banks or any other measures taken by regulating authorities to increase the phase of economic growth. Consumer confidence statistics are very important leading indicators for investors as it can rightly predict the consumer spending patterns.
Traders and market analysts will have a close watch on the CCI numbers as they can determine if the consumer spending has increased or decreased. Positive indices imply more business spending and that increases earnings and value of the currency. Even with respect to stocks, investors tend to buy more stocks if the Consumer Confidence Index increases compared to the previous months. There will be a dramatic change in the stock market on the day the CCI is published. But this doesn’t apply for more stable economies of developed countries like the U.S. Apart from all of these, a lot more insights with respect to employment and consumer satisfaction, can be derived from the CCI data.