Market Musings is my weekly post about either the current state of the financial markets, which I’ll usually just call “markets,” or an explanation about a markets related topic for people who don’t have a job that deals with the markets on a daily basis.

Yesterday, I was reading MarketWatch’s Market Snapshot and I saw they were mentioned that consumer confidence had risen to its highest level since 2007. The one downside to this was that the future expectations for six months from now were expected to be lower.

I thought consumer confidence is probably a great topic to write about on Market Musings. I think some people have probably heard of it before but they may not know who produces it each month, how many different groups produce a similar indicator, what it means, and why we should or shouldn’t care.

What Indicator was being Referenced?

MarketWatch was referencing the, Consumer Confidence Index (CCI), which is produced by a non-profit group with the most nondescript name, The Conference Board. The CCI headline figures are released on a monthly basis along with the groups Present Situation Index and Expectations Index.

What Does the Indicator Mean?

CCI is meant to report on the overall confidence and financial situation of the average U.S. consumer.

What Does it Tell Us?

Based on whether the indicator is increasing or decreasing, it should give us an idea on what consumers are planning to do in the near future. If the indicator is on the rise then consumers are more likely to continue spending money like buying a home or car, buying new products, or taking a vacation. Rising indicators would typically mean consumers believe the economy is going to continue to get better in the near future, they aren’t worried about the status of their job, and job prospects look positive.

A falling indicator would tell us the opposite is happening in the economy. U.S. consumers are worried about the economy and their financial situation in the near future, maybe their job doesn’t look like it’s going to last or is already gone and job prospects have dried up. Falling indicators would lead us to believe that consumers will start to restrict their spending and start saving money.

Sorry to disappoint any of you who started to think that this indicator would allow you to predict the markets. Similar to most things in life there is no silver bullet to predicting where the market will go. This indicator is believed to be, and I believe it to be, a lagging indicator.

Right now, this indicator is telling us that consumers are more positive on their current economy and financial situation than they were the last month. The downside MarketWatch stated was that the Expectations Index fell to 91.0 from 91.6, which tells us that consumers are more concerned about the next six months.

Who Else Produces a Similar Indicator?

University of Michigan Consumer Sentiment Index, Bloomberg Consumer Comfort Index, Consumer Confidence Average Index, & Gallup Economic Confidence Index are all slightly different from CCI but they are all essentially trying assess the same thing, consumer confidence.

Should You Care?

I follow Barry Ritholtz’s basket of metrics method.

Do I think this indicator gives us enough information to make an informed investment decision on its own?

Absolutely not.

Could we use this when considering the overall direction of the market along with a number of other indicators?


Think of the market as a puzzle and all of the indicators as pieces to the puzzle. Then imagine that you get a new puzzle every day or month. That’s what your investment decisions could look like depending on your investment outlook.  There is never going to be one indicator that gives you the solution for the puzzle but by looking at number of different indicators not the handful that already confirm your idea of where the market is going.  For almost all of you who are reading and are not in a financial related job than you should really ignore most of the indicators your hear about on a regular basis.  The only thing they’ll do is confuse you or make you panic.  I only talk about them hear because it’s helpful to understand their meaning.

If you’re only investment is your retirement account then don’t be stupid. Find a good index or life cycle fund and setup a reoccurring investment.