Econoville

I know you are very upset with me – Abandoning you in such tough economic times… So it is time for me to make it up to you!

Today’s topic – Importance of Consumer Confidence Index (aka: CCI). Complete information about the Index can be found at The Conference Board. To quickly summarize my interpretation: The index surveys consumers to understand their sentiment. Lets take this simple, real world example:

Your Sentiment (aka: your outlook on unknown future, your state of mind, your psychological tendency) changes for the worse, so you decide to crack down on the obvious, and go on family restaurant outings only 25% Less a month.

Assuming other consumers do something similar, what we end up with is a local Restaurant getting 25% Less business in a month. As with most businesses, they are not equipped to deal with such a big fluctuation in income, so naturally they will need to lay off some staff, and for remaining staff, there will be probably less Tips to distribute, that month.

What this does, is turns our purely theoretical “Sentiment”, just turned into real life hit on the economy. The let-go employees may take some time to find work, and surely will not be splurging in the meantime, and even after later finding a job (psyche kind of works that way).

In fact, this turns into somewhat of a cycle, as next month even less people are in a condition to “splurge”, either based on more theory (now hearing from friends about tough times), or on painful reality.

This is a little primer into Consumer Confidence Index, and of course it is oversimplification of sorts. Many industries actually able to adopt, to manufacture less, sometimes below demand even (driving item prices and consequentially earnings up, for that company). I am open for input, and discussions, so comment away!