The Consumer Confidence Index (CCI) measures how optimistic consumers are about the state of the economy. Specifically, it measures how consumers are feeling about:
1. Current business conditions.
2. Business conditions for the next six months.
3. Current employment conditions.
4. Employment conditions for the next six months.
5. Total family income for the next six months.
In the most simplistic terms, when [CCI] is trending up, consumers spend money, indicating a healthy economy. When confidence is trending down, consumers are saving more than they are spending, indicating the economy is in trouble. The idea is that the more confident people feel about the stability of their incomes, the more likely they are to make purchases.
The Conference Board, which measures the CCI, announced yesterday that:
The Conference Board Consumer Confidence Index™, which had improved moderately in September, fell to an all-time low in October. The Index now stands at 38.0 (1985=100), down from 61.4 in September…
Says Lynn Franco, Director of The Conference Board Consumer Research Center: “The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence. The decline in the Index (-23.4 points) is the third largest in the history of the series, and the lowest reading on record. In assessing current conditions, consumers rated the labor market and business conditions much less favorably, suggesting that the fourth quarter is off to a weaker start than the third quarter. Looking ahead, consumers are extremely pessimistic, and a significantly larger proportion than last month foresees business and labor market conditions worsening. Their earnings outlook, as well as inflation outlook, is also more pessimistic, and this news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season.”
As a point of comparison, the CCIs most recent peak was at 112 in July 2007. It is down by two thirds since then. The last CCI trough was at 61 in March of 2003, down from a peak of 144 in May 2000. This time around consumer are far more concerned than they were in even the depths of the last economic slowdown. Historical CCI stats are available here.
All consumer facing companies, whether ad based or commerce based, should bear these numbers in mind when planning for Q4 2008 and for 2009.