US & World Economies Economic Terms What Is a Consumer Sentiment Index? By Ann Logue Ann Logue Ann Logue is the author of "Day Trading for Dummies," "Hedge Funds for Dummies," and "Socially Responsible Investing for Dummies." She has over two decades of experience covering investing, business, and economics for a range of outlets, including Nordea Markets, Gerstein Fisher Asset Management, and The Balance. learn about our editorial policies Updated on December 9, 2022 Reviewed by Robert C. Kelly Reviewed by Robert C. Kelly Robert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital. learn about our financial review board In This Article View All In This Article Definition and Example How a Consumer Sentiment Index Works What It Means for Individual Investors Notable Happenings Photo: gradyreese / Getty Images Definition Consumer sentiment indexes are leading economic indicators that measure changes in the outlook for the economy. Key Takeaways A consumer sentiment index is a measure of how consumers are feeling about the next few months.Analysts want to know if consumers think they will be making more money, if they plan to spend more money, and if they are interested in making large purchases.Consumer confidence is a leading indicator, but it can change rapidly based on news events. Definition and Example of Consumer Sentiment Index A consumer sentiment index is a leading economic indicator that predicts changes in economic activity based on how likely consumers are to buy things, often in the next 12 months. Surveyors ask consumers if they are likely to spend money in the next few months to compile an aggregate view. Will people be buying cars and houses? Do they think they will get raises or that they might be laid off? The best-known of the U.S. consumer sentiment indexes is based on the University of Michigan Surveys of Consumers, which have been conducted in some form or another since 1946. Each month, the Michigan Consumer Sentiment Index and others are released to the public. Analysts and economists use the data to develop a view of the economy over the near future. If consumers are optimistic about the future, then they are likely to buy more, which is good for the economy. If they are pessimistic, they are more likely to save their money. Alternate name: consumer confidence index For example, if a consumer sentiment index reports an increase from one month to the next, analysts take that as a sign that buyers are feeling more confident about their prospects, so they are more willing to make big-ticket purchases or spend money on wants, rather than needs. If an index shows a decline, then consumers are feeling nervous. They are less likely to commit to appliances or cars and more likely to save money in anticipation of future problems. Economic activity may suffer even if it otherwise looks like the economy is good. Note Consumer confidence numbers are often analyzed alongside measures of CEO confidence and corporate purchasing plans. How a Consumer Sentiment Index Works Consumer sentiment is considered to be a leading index, meaning it shows what is likely to happen in the future. It helps economists and policymakers think about what retail demand and savings rates will be, and how that can translate to things such as prices and employment. Different indexes are calculated in different ways. Some involve in-person interviews and others are conducted online. The Federal Reserve Bank of New York’s Survey of Consumer Expectations is an online survey of a rotating group of more than 1,000 panelists who are asked about inflation, household finance, the labor market, and the housing market. The Conference Board’s Consumer Confidence Index began as a mail survey in 1967. Now, information is collected online, with 3,000 respondents each month answering questions about their current situations and what they see in the next six months for business outlook, their employment, and their family income. What It Means for Individual Investors Each month, data from the different consumer confidence measures is released. It usually has a small effect on the financial markets. Generally, traders view rising consumer confidence as a sign that there will be increased consumer spending. This is good for retailers and consumer products companies. However, higher consumer spending could lead to an acceleration in inflation. Note Strong consumer sentiment is good for makers of consumer products, appliances, and cars. If consumer confidence is falling, then the outlook for retail and consumer products companies is weaker. It could be evidence of an upcoming economic slowdown or of a decline in inflation. This is one factor among many for predicting financial markets’ outlooks. Notable Happenings Consumers are not clairvoyant, and news events can turn consumer sentiment in no time. In February 2020, for example, the Michigan Surveys of Consumers index stood at 101. In April, after the initial coronavirus lockdowns took effect, the index had slid to 71.8. The pandemic is a good example of how consumer sentiment can change, as well as the way in which businesses and investors can use information about consumer sentiment to build forecasts. Consumers continued to spend money, but they switched to more goods for use at home, and they relied more on online shopping and order pickup rather than traditional in-person shopping. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Organisation for Economic Coordination and Development. “Consumer Confidence Index (CCI).” Accessed Dec. 24, 2021. University of Michigan. “Surveys of Consumers.” Page 1. Accessed Dec. 24, 2021. Federal Reserve Bank of New York. “Survey of Consumer Expectations.” Accessed Dec. 24, 2021. The Conference Board. “Consumer Confidence Survey Technical Note – May 2021.” Page 1. Accessed Dec. 24, 2021. New York University Stern School of Business. “Consumer Confidence.” Accessed Dec. 24, 2021. University of Michigan. “Surveys of Consumers.” Accessed Dec. 24, 2021.