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What Consumer Confidence Reports Reveal

The report that measures consumer confidence is a big report that comes from two sources that publish separate updates, the Conference Board, a private research group, and the University of Michigan.

The Conference Board Survey

The Conference Board, Inc. publishes a monthly report based on survey interviews of 5,000 consumers.

Key components of the Conference Board survey are

  • The monthly index

  • Current conditions

  • Consumers’ outlook for the next six months

In April 2005, the monthly index fell, and so did the current condition and outlook portions of the survey. The result: Bonds rallied, stocks rallied, and the dollar remained steady. The report became another piece of the economic puzzle at a key time in the U.S. economy.

The way the market looked at the data, following eight straight Federal Reserve interest-rate increases, showed that the economy was starting to slow. To a layman, a slowing economy would be bad news, but to a futures trader, the data meant that the Fed may be nearing the end of its rate hikes (or that interest rates may be leveling off).

The University of Michigan Survey

The University of Michigan conducts its own survey of consumer confidence, and it publishes several preliminary reports and one final report per month.

Key components of the University of Michigan Survey are

  • The Index of Consumer Confidence

  • The Index of Consumer Expectations

  • The Index of Current Economic Conditions

In April 2005, the University of Michigan reported that “Consumer confidence sank in April, marking the fourth consecutive monthly decline, with the Sentiment Index falling to its lowest level since September 2003.”

The report cited “rising gas prices” and a poor job outlook as reasons for the sag in consumer confidence and the increasingly negative data for consumer expectations. The impact on the markets was predictable. Bonds rallied and so eventually did stocks … after an initial dip.

Again, the key to the report was that consumer confidence was falling. When consumers are less confident, the Fed is less likely to continue to raise interest rates.

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