Consumer Confidence Index (CCI) is an index drawn from consumer surveys. CCI and similar consumer surveys might influence forex market. How?

If PMI is an index that is taken from business surveys, then Consumer Confidence Index (CCI) is an index drawn from consumer surveys. A certain organization conducts monthly survey on a number of consumers in the country, and questions them on topics like business conditions, employment, and income. CCI usually are divided into two parts, they are about present condition and for the next six months.

 

How To Read Consumer Confidence Index

CCI is based on the concept of a consumer-driven economy. In countries such as the US and Indonesia, more than half of GDP (and often even more than 60%) are attributed to consumer spending. When people spend a lot of money to buy goods and services, businesses flourish, productivity increased, and the economy expands. As well, more workers will be hired and the country will thrive. On the opposite, low CCI signals low demands in the country and if it goes on for a long time, then companies may stop production and lay off their workers.

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Consumer Confidence Index above 100 indicates optimism, while a reading below 100 indicates pessimism. Changes under 5% are considered insignificant, while 5% or more might indicate important changes in the economy. A good CCI generally ranges about 100-150. In September 2011, Indonesia's CCI, released by Bank Indonesia, recorded an all-time high of 146.8.

However, each country might have different methods of conducting consumer surveys. In the US, CCI was conducted by independent organizations, The Conference Board (CB-CCI), University of Michigan (University of Michigan Consumer Sentiment Index/MCSI), and Washington Post-ABC News Consumer Comfort Index. Each organizations survey different amount of respondents, although they gather similar informations.

In Indonesia, the survey is done by the central bank, Bank Indonesia, through stratified random sampling toward 4600 household in 18 largest cities. As household spending represents the highest portion of GDP in the country, CCI is an important data for decision makers in the Government and Private Sector.

Beside of the US and Indonesia, countries that have been conducting consumer surveys are Canada, Japan, and Australia, among others. Apart from Consumer Confidence index, there are also Consumer Demand and Consumer Sentiment surveys. Consumer Sentiment and Consumer Confidence are generally similar. But Consumer Demand surveys are a bit different because they ask about household plan to purchase certain groups of goods for the next three months.

 

The Impact of Consumer Confidence Index

Consumer surveys are a good tool for business planning, especially in retail and marketing. But as an economic indicator, they have an obvious weakness that may render it less useful at times. Consumer surveys usually has extremely small number of respondents. The CB Consumer Confidence Index that is marked as one of important datas in forex fundamental calendars, only surveys 5000 households. Of course, this is not a sufficient amount to represent the confidence of all US consumers. Therefore, Consumer Confidence Index may contradict other economic datas such as GDP and employment report.

Nevertheless, selected surveys have been known to have moderate to high impact toward currency movements in forex market, particularly in consumer-driven economies. US CB CCI  often has a strong impact on USD. An index higher than forecast means bullish for greenback. GfK's UK CCI too, could mean bullish or bearish for Poundsterling, as consumer spending is the key of UK economic growth.

In cases of worrisome circumstances, bad CCI might drop a currency rates, although it usually have low to moderate impact. This is what happened on AUD lately. Consumer confidence in German ordinarily have moderate impact too, but when the threat of deflation is hanging over Eurozone, it may turn more influential. As consumer confidence dropped, traders confidence fell as well. On the other hand, high consumer confidence will maintain market players' confidence on the currency.

 

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