Investing Portfolio Management International Investing Consumer Confidence and Its Impact on the Markets By Justin Kuepper Justin Kuepper Twitter Justin Kuepper is a financial analyst, journalist, and private investor with over 15 years of experience in the domestic and international markets. learn about our editorial policies Updated on November 14, 2021 Reviewed by Chip Stapleton Fact checked by Hans Jasperson Fact checked by Hans Jasperson Hans Jasperson has over a decade of experience in public policy research, with an emphasis on workforce development, education, and economic justice. His research has been shared with members of the U.S. Congress, federal agencies, and policymakers in several states. learn about our editorial policies In This Article View All In This Article How Is Consumer Confidence Measured? How Consumer Confidence Surveys Work Consumer Confidence Around the World Using Consumer Confidence Data Photo: Thomas Barwick / Getty Images There is little question that consumer spending fuels most developed service-based economies, including the U.S., where it represents about 70% of gross domestic product (GDP). While measuring this spending is rather straightforward, predicting future trends can be very difficult, given the fickle and scattered nature of consumers on an aggregate basis. This article will look at what consumer confidence is, and how investors can use the indexed information to make better decisions. Key Takeaways Consumer confidence is the optimism consumers feel about the state of the economy and their personal financial circumstances.Consumer confidence is measured by using surveys to gather information and create an index known as the Consumer Confidence Index.The index is important for investors because it can indicate consumer spending and the effectiveness of monetary policy. How Is Consumer Confidence Measured? Economists solved the problem of measuring consumer confidence by developing what is now known as the Consumer Confidence Index (CCI). By questioning a statistically significant number of people residing within a given country using surveys, they aim to measure the degree of optimism that consumers feel about the overall state of a country's economy and their financial situation. When consumers are confident in their futures, they tend to spend money and drive economic growth higher. When consumers aren't confident, they tend to save rather than spend, which restricts economic growth. Therefore, international investors pay close attention to the information gathered in these surveys since it can serve as a great leading indicator for the overall economy. How Consumer Confidence Surveys Work There are many different types of consumer confidence surveys used worldwide, but most of them operate similarly. Based on a probability-designed random sample, the surveys ask a series of questions designed to assess the consumer's current and future outlook to capture their views of the economy and financial situation. Questions typically cover things such as: Current business conditionsBusiness conditions over the next six to 12 monthsCurrent employment conditionsEmployment conditions over the next six to 12 monthsTotal family income over the next six to 12 months Participants are generally asked to answer each question as "positive," "negative," or "neutral," which are scored as 1, -1, and 0, respectively. Responses are added up to calculate a "relative value." This value is compared to a baseline "index value," which is often the initial value taken when the surveys first began. Finally, these index values are averaged to produce an aggregate value that's commonly reported. The CCI survey is updated monthly by The Conference Board. The goal of consumer confidence surveys is to predict future consumer spending patterns, with the premise that more confidence leads to more buying and stronger economic growth. Consumer Confidence Around the World There are many different measures of consumer confidence used around the world. For example, companies such as Nielsen regularly survey consumers in roughly 60 countries, while many countries have various organizations that calculate their own indexes. Some of the most popular indexes include: Canada: Conference Board of Canada Index of Consumer ConfidenceIndia: Reserve Bank of India Consumer Confidence IndexIsrael: Central Bureau of Statistics Consumer Confidence IndexSpain: Centro de Investigaciones Sociológicas Consumer Confidence IndexBritain: GfK Consumer Confidence BarometerGlobal: Nielsen Global Online Consumer Survey Using Consumer Confidence Data Consumer confidence data is an extremely important leading indicator for investors, given its ability to predict consumer spending patterns. These spending patterns can be useful predictors of everything from gross domestic product (GDP) growth to the effectiveness of monetary policy in combating low unemployment and inflation. Additionally, as researchers gather more information about consumer behavior, spending and saving patterns emerge that are based on economic and social circumstances, natural occurrences, political sentiments, and many other events. This information can greatly help investors anticipate market prices. Here are a few common uses: Leading indicator: Consumer confidence indices can be used as leading indicators for a broad economic turnaround, including resumed growth in GDP. Policy effectiveness: Consumer confidence can be used to gauge the effectiveness of a monetary policy, stimulus, or other measures used by regulators to jumpstart growth. Retail sector: Consumer confidence is particularly important in the retail and luxury goods industries since their revenues are highly correlated with spending patterns. 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. FRED Economic Data. "Shares of Gross Domestic Product: Personal Consumption Expenditures." The Conference Board. "Consumer Confidence Survey." The Conference Board. "Consumer Confidence Survey Technical Note—February 2011." Pages 1-3. The Nielsen Company. "Global Consumer Confidence." The Conference Board of Canada. "Index of Consumer Confidence." Reserve Bank of India. "Consumer Confidence Survey - Bi-Monthly." Central Bureau of Statistics. "Explanations-Consumer-Confidence." Centro de Investigaciones Sociologicas. "Consumer Confidence Index." Growth from Knowledge. "Consumer Confidence Barometer." Nielsen. "Global Consumer Confidence."