Consumer Confidence Index, Important Indicator that the Trader Needs to Understand
You may already know about the Consumer Confidence Index or Consumer Confidence Index. This data is very often mentioned because this data has a large effect on currencies such as USD and so on.
The question is what is the Consumer Confidence Index?
This discussion will explore thoroughly what is meant by the index of consumer confidence and its influence on the forex market.
Here’s a further explanation.
Consumer Trust Index
If it is defined the consumer confidence index is an economic indicator used to measure the level of optimism of consumers in a country in general economic conditions and this can be seen from the shopping and savings activities they do.
If you look at an example in the United States, then consumer confidence index data will usually be released monthly by The Conference Board. The survey conducted by this institution will ask the public opinion about 5 things. These questions include current business conditions, business conditions over the next 6 months, current employment conditions, employment conditions for the next 6 months, and total family income over the next 6 months.
Each respondent will answer the question posed with a positive, negative, or neutral answer. If this has been done, the relative value of each question will be calculated separately and the value will be compared to the value in 1985.
Comparisons made will produce index values for each question posed and all of these values will be made on average which will then produce a Consumer Trust Index. Where questions 1 and 3 will become the Current Economic Situation Index (Present Situation Index) and questions 2, 4, 5 will become the Expectation Index.
In addition to the United States, there are also several countries that have published their Consumer Confidence Index, including India, Indonesia, Canada and Ireland. Institutions conducting surveys may vary from one to another, but all institutions will summarize the views of the people within the state.
How To Easily Read the Consumer Trust Index?
The Consumer Trust Index published by The Conference Board is always monitored by various groups including the Central Bank, Commercial Banks, Entrepreneurs, and Investors which will be used as their consideration. When the index changes below 5%, the data is usually ignored and not too significant, but when the data changes above 5%, the data can be an indication of changes in the economic direction.
The consumer confidence index issued by The Conference Board was recorded at 144.70 in June 2000 and was also recorded in a low position at 25.0 in February 2009.
As consumer confidence index trends continue to decline from month to month, it means showing consumers having a negative outlook and they will shop less. The impact is that the factory will begin to postpone new projects and they will do efficiency, besides that the bank begins to anticipate a decline in credit loans, and the government starts to issue stimulus policies.
If viewed from the USD side, a better than expected consumer confidence index will have a positive impact and can support the USD to strengthen. A lower number of expectations can also have a negative impact and can push the USD to weaken.
There is an easy way to see the amount of expectation values for the consumer confidence index, you can see on the forex calendar or news sites like Bloomberg and the Wall Street Journal.
Conditions in Indonesia
In August 2017, a survey conducted by Bank Indonesia showed that the consumer confidence index weakened in the period. In August 2017 the index fell to 121.9 and declined compared to July 2017 at 123.4.
In the conditions reflected above, this shows that weakening consumer confidence is due to a changing consumer pattern. So that consumption starts to decline and public savings increase.
Not only that, because the weakening that occurred was also triggered by the people’s view of the income they received at the moment and the timeliness of purchasing durable goods.
Although the data above shows weakness, Bank Indonesia considers the weakening is still in a reasonable and optimistic stage. Because this is supported by positive expectations related to increased employment in the next 6 months.
The Consumer Confidence Index outlines how the public views the economy and business conditions going forward and now. So that when this index is positive, this shows that the public is optimistic about business and economic conditions.Likewise, when the index value is weakened, this indicates that the public is skeptical about the existing business conditions.
The positive index also shows an indication of the strengthening of the currency and this is certainly a very useful information for forex traders.
Consider the full explanation we can convey about the consumer confidence index. If there are confusing and unclear explanations, please just ask us through the comments column below. We will be happy to answer any incoming questions for you.
Share this article through social media, if you know the information above provides benefits for many people.