Link to the Index of Consumer Sentiment:
https://customers.reuters.com/commun…y/default.aspx
Text from video:
The University of Michigan’s Index of Consumer Sentiment. Similar to the Consumer Confidence Index, the Index of Consumer Sentiment gauges consumer’s view on the condition of the economy.
The Index of Consumer Sentiment is reported by the University of Michigan twice a month.
The preliminary report comes out on the 2nd Friday of the month being reported, and while it not designed for public view and not published on the report’s website, the results are leaked to the press and made available to the public.
The final report comes out on the last Friday of the month. I’ll post a link for the final report in the text next to the video.
Each month, 500 people are contacted and asked the following five questions pertaining to the conditions of the economy.
1. “We are interested in how people are getting along financially these days. Would you say that you, and your family living there, are better off or worse off financially than you were a year ago?”
2. “Now looking ahead–do you think that a year from now you, and your family living there, will be better off financially, or worse off, or just about the same as now?”
3. “Now turning to business conditions in the country as a whole–do you think that during the next twelve months we’ll have good times financially, or bad times, or what?”
4. “Looking ahead, which would you say is more likely–that in the country as a whole we’ll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression, or what?”
5. “About the big things people buy for their homes–such as furniture, a refrigerator, stove, television, and things like that. Generally speaking, do you think now is a good or bad time for people to buy major household items?”
The Index of Consumer Sentiment is calculated from the responses.
The Index of Consumer Sentiment is calculated by taking the total number of positive responses for each question, subtracting from it the total number of negative responses, and then adding 100. The result is then rounded to the nearest whole number.
The result is then divided by the index numbers from 1966, a constant factor is applied to correct for sample design changes, and the result is presented as an index number that is a percent of what the sentiment was in 1966.
In addition, the responses are also used to calculate out 2 more indexes: The Index of Consumer Expectations, and the Current Conditions Index. Similar to the Consumer Confidence Index, the entire Index of Consumer Sentiment looks at the overall condition of the economy, the condition the economy is right now, and the condition the economy will be in the future.
However, the Index of Consumer Sentiment varies from the Consumer Confidence Index in that the Consumer Confidence Index future outlook is for conditions in the next 6 months, while the Index of Consumer Sentiment looks at the opinion of conditions over the next 5 years.
The report itself is very short and simple.
There is a small chart showing the current index numbers for all 3 categories- Index of Consumer Sentiment, the Index of Consumer Expectations, and the Current Conditions Index. Next to that is the Index numbers from the previous month, the index numbers from the previous year, the percent of change from the previous month and the precent of change from the previous year.
There is also a brief summary with opinion as to what caused the change in values.
At the bottom of the page is a small graph showing an extended view of the Index of Consumer Sentiment with a 3 month moving average to show the trend.
Single month reports usually have little impact on the markets unless the index numbers have changed a significant amount. However, long term trends in one direction can show the direction the economy is heading.
If the trend is up, it means that spending in the economy should increase, which could lead to inflation and interest rate increases. If the trend is down, it means that spending should decrease, and savings should increase, which could increase unemployment and cause interest rates to be lowered.
Both the Consumer Confidence Index and Index of Consumer Sentiment reports have their problems.
While both measure consumer sentiment, the reports don’t always track each other. Sometimes one will show an improvement in sentiment, while the other shows a decline.
The main reason for the variance between the two reports is that the future outlook for the Consumer Confidence Index only inquires about the conditions for the next 6 months, while the Index of Consumer Sentiment inquires about conditions over the next 5 years.
Another problem is that the sampling data for both the Consumer Confidence Index and the Index of Consumer Sentiment reports is grossly lacking. 500 people for one report, and 5000 for the other is hardly a comprehensive poll.
So that’s the Index of Consumer Sentiment, a report economists use to gauge consumer sentiment, and in turn future spending in the economy.
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