What it the consumer confidence index?
The consumer confidence index is a economic indicator used to measure consumers confidence in the economy by looking at current and future spending or saving plans, this is an important indicator and directly effects GDP which is looked at by the central banks to decide on interest rate changes.
How is the consumer confidence index measured?
The consumer confidence index is measured monthly with thousands of surveys being sent out to various households asking their opinion on:
- Current business conditions
- Business conditions over the next six months
- Current employment conditions
- Employment conditions for the next six months
- Total family income for the next six months
The results of the survey are released on the last Tuesday of each month. Opinions on current economic conditions make up 40% of the index with 60% of the index looking at future expectations.
Positive results indicate a growing economy with people confident in their employment and financial situation leading to more spending, which increases consumption, this could eventually lead to interest rate hikes. Negative results produce the opposite by indicating the economy is slowing down with people less confident in their employment and finances meaning less sending and less consumption, this could eventually lead to interest rate cuts.
How to trade the consumer confidence index
A growing economy raises the value of the currency because of possible interest rate hikes if the economy grows too fast. The consumer confidence indicates the economic growth and is watched by the central banks to help make a decision on interest rate changes, because of this when the consumer confidence index is raises it shows a growing economy which increases the currencies value and when the consumer confidence drops so does the value if the currency.