Consumer confidence shaken by the virus
If it weren't for the Coronavirus pandemic, the index for this month would have had a positive evolution, as in February, say market analysts. At that time, 0.6% income increase made the consumer spend 0.2% more than before.
What is it?
The Conference Board (CB) Consumer Confidence Index indicates the health of the U.S. from the consumer’s point of view. It is based on consumers’ opinions about the labor market conditions, their expectations regarding business conditions, and income. It is based on a five-question survey, and every question has three possible choices: positive, negative, or neutral. It is released monthly, on the last Tuesday of the month.
How is it calculated?
As said before, each question has three options. To obtain a proportion -for every question - the sum between positive and negative gets to be divided by the positive figure. This is called “the relative value.” Then, for each question, an index value must be determined, and the values are averaged as follows:
- Average of the five indexes → Consumer Confidence Index
- Average of indexes for the first two questions → Present Situation Index
- Average of indexes for the last three questions → Expectations Index
Yesterday, the report was released, and it wasn't good news for the economy. Coronavirus took over the CB index, as it did with most other indices during these past 3 months. The report showed that consumers are troubled about the economy. The index reached a level last seen in June 2017. It dropped from 132.6 in February to 120 this month.
Some economists were expecting a more significant drop. Still, the fact that more than 3.2 million people filed for unemployment in just a week, doesn't paint a colorful picture, and so, the index is expected to drop even more. Torsen Slok, chief international economist at Deutsche Bank Securities, stated that "consumer spending is 70% of GDP” and “an important part of what drives your and my consumer spending is your wealth and whether you have a job.”
One senior director of economic indicators at The Conference Board, Lynn Franco, stated the obvious: "The intensification of COVID-19 and extreme volatility in the financial markets has increased uncertainty about the outlook for the economy and jobs.”The situation doesn't have a bright outlook, and expectations for the next report are considerably negative.
Why is it important?
The CB Consumer Confidence economic indicator is important because it shows the overall situation of the economy. Consumer confidence increases if the economy grows. Of course, if the economy shrinks, the confidence decreases.
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Sources: yahoo.com, forexfactory.com, conference-board.org, politico.com, nbcnews.com
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