Consumer Confidence

Consumer spending makes up roughly two thirds of the US economy, so how households feel about their finances matters. Consumer confidence and sentiment surveys ask people about current conditions and their expectations for jobs, income, prices and business conditions. These surveys give early clues about spending and inflation expectations, though the link between what people say and what they actually spend is looser than many expect.

The main US surveys#

Both have present situation and expectations components.

Inflation expectations#

The University of Michigan survey asks consumers what inflation they expect over the next year and over the next 5 to 10 years. Central banks watch long term expectations closely, because if people expect high inflation, they may demand higher wages and accept higher prices, making inflation self reinforcing. See Inflation.

What drives consumer confidence#

Do surveys predict spending?#

The relationship between sentiment and spending is imperfect. In 2022, US consumer sentiment fell to record lows in the Michigan survey, yet consumer spending kept growing, supported by strong job growth and savings. Economists sometimes summarise this as "watch what consumers do, not what they say." Spending data such as retail sales and personal consumption are more direct. See Retail Sales.

Confidence surveys are most useful at extremes and turning points, and as signals of how inflation expectations and labour market perceptions are shifting.

Confidence as a contrarian signal#

Very low consumer sentiment has sometimes coincided with market bottoms, and very high sentiment with late cycle peaks, which leads some investors to treat extreme readings as contrarian indicators. As with most sentiment measures, the timing is unreliable. See Sentiment Data.

Market reactions#

Consumer confidence releases usually move markets less than jobs, inflation or PMI data. Larger reactions occur when inflation expectations surprise, or when readings suggest a sharp change in the labour market.

Surveys in other countries#

• Euro area: European Commission consumer confidence indicator.
• UK: GfK consumer confidence.
• Japan: Cabinet Office consumer confidence.
• China: consumer confidence index from the National Bureau of Statistics.

Frequently asked questions#

What is consumer confidence?#

A measure of how optimistic households feel about the economy, their finances and the future, based on surveys.

What is the difference between the Conference Board and Michigan surveys?#

The Conference Board index leans more on labour market views; the Michigan index focuses on personal finances, buying conditions and includes inflation expectations.

Does consumer confidence predict spending?#

Only loosely. Spending often depends more on jobs and income than on reported sentiment, though extremes can signal turning points.

Next, learn to read consumer spending directly in Retail Sales.