Understanding the CCI

Want to know the health of an economy? Ask its consumers how they're feeling.

The CCI, Consumer Confidence Index, is a key indicator of the general economic situation.

It measures the degree of optimism consumers have towards the economy and their own financial situations.

The more confident the consumers are, the more likely they spend. When consumers are pessimistic, their spending patterns might discourage economic growth.

Consider that consumer spending accounts for more than two-thirds of the economic activity in the United States, so the Federal Reserve, businesses, and investors closely watch the CCI.

The Conference Board publishes the consumer confidence report based on a survey at 10:00 AM ET on the last Tuesday of each month.

CCI is based on the Consumer Confidence Survey. The survey reflects consumers' perceptions of current business and employment conditions and their expectations for six months hence regarding business conditions, employment, and income.

The survey includes five questions: two related to the present economic conditions, and the other three are about expectations.

The responses are then gathered. According to specific rules, the Consumer Confidence Index, Present Situation Index, and Expectations Index are calculated.

Since the benchmark score is 100, we believe that the values above 100 signal a boost in the consumers' confidence towards the future economic situation, meaning that consumers will spend more and stimulate the economy.

In contrast, values below 100 indicate a pessimistic attitude toward future economic developments, possibly resulting in a tendency to save more and consume less, which could lead to an economic slowdown or recession.

By gauging the consumer confidence index against sector-specific performance, traders and the Fed alike can gain consumers' perspectives of the economy while keeping an eye on possible inflation.

A higher-than-expected reading may signal a stronger USD.

In contrast, a lower-than-expected reading indicates that the USD might go weak.

For stocks, strong economic growth generally translates to healthy corporate profits and higher stock prices.

For bonds, the focus is whether economic growth will go overboard and lead to inflation.

When prices of goods and services keep rising, the Federal Reserve System typically raises its target rate to cool down an overheating economy.  

Rising interest rates cause bond prices to fall and bond yields to rise.

However, the current mood plays a big role in consumer confidence, so the survey results should be interpreted cautiously.

When analyzing the data, many economists evaluate the 3-to-6-month moving average of the index, which might be more indicative of a trend.