Background on The Conference Board and Its Consumer Confidence Index
The Conference Board, a global research organization, regularly publishes the Consumer Confidence Index (CCI). This index measures consumer sentiment regarding current economic conditions and future expectations. The CCI is a crucial indicator of consumer confidence, as it reflects how optimistic or pessimistic consumers are about the economy’s near-term prospects.
April 2023: A Stark Decline in Consumer Confidence
On April 29, The Conference Board reported that the CCI plummeted to 86 points in April, marking its lowest level since May 2020. This sharp decline is primarily attributed to growing concerns over tariffs and their impact on the economy.
Components of the Consumer Confidence Index
The CCI comprises two key components:
- Present Situation Index: This measures consumers’ perceptions of the current state of the economy, based on their assessments of business conditions and the labor market. In April, this index fell 0.9 points to 133.5.
- Expectations Index: This component reflects consumers’ short-term outlook on income, business activity, and the labor market. The Expectations Index dropped 12.5 points to 54.4, the lowest level since October 2011 and well below the 80-point threshold that typically signals an impending recession.
Economic Factors Contributing to the Decline
Several factors have contributed to this decline in consumer confidence:
- Slowing Economic Growth: The U.S. government is expected to announce that economic growth slowed sharply in the first quarter, amid rising imports due to businesses rushing to bring in goods before tariff costs increased.
- Reduced Consumer Spending: High inflation and concerns over tariffs’ impact on the economy have led some households to cut back on consumption to preserve their savings.
- GDP Projections: According to a Reuters survey, the U.S. Gross Domestic Product (GDP) likely increased at an annualized rate of 0.3% in the January-March quarter, the weakest performance since the second quarter of 2022. The Federal Reserve Bank of Atlanta anticipates a GDP decline of 0.4%, after adjusting for gold imports and exports, aligning with this pessimistic outlook.
Impact on the U.S. Economy
The decline in consumer confidence could have significant implications for the U.S. economy:
- Reduced Consumer Spending: As consumers become more cautious about their financial futures, they may cut back on discretionary spending, which could slow down economic growth.
- Business Investment: Lower consumer confidence might also discourage businesses from investing and expanding, further impacting economic growth.
- Potential Recession: The Expectations Index’s drop to 54.4 points, well below the 80-point recession threshold, raises concerns about a possible economic downturn.
Key Questions and Answers
- What is the Consumer Confidence Index? The Consumer Confidence Index measures consumer sentiment regarding current economic conditions and future expectations. It is published by The Conference Board, a global research organization.
- Why did consumer confidence drop in April 2023? The decline is primarily due to growing concerns over tariffs and their impact on the economy.
- What are the components of the Consumer Confidence Index? The index comprises the Present Situation Index, which measures current economic conditions, and the Expectations Index, reflecting short-term outlook on income, business activity, and labor market conditions.
- What are the potential consequences of this decline in consumer confidence? Reduced consumer spending, decreased business investment, and potential recession are some possible consequences.
