Consumer Confidence and Sentiment Surveys
Why Consumer Attitudes Matter
Consumer spending represents approximately 70% of US GDP. Understanding how consumers feel about economic conditions—their confidence and expectations—helps anticipate spending trends before they show up in hard data.
The two major surveys:
- Conference Board Consumer Confidence Index: Focuses on labor market conditions
- University of Michigan Consumer Sentiment Index: Focuses on financial conditions and inflation expectations
The point is: These surveys capture the psychological component of economic activity. Consumers who feel pessimistic tend to reduce spending, regardless of their actual financial situation.
Conference Board Consumer Confidence
The Conference Board surveys approximately 3,000 households monthly, asking about:
- Current business conditions
- Current employment conditions
- Expectations for business conditions in six months
- Expectations for employment in six months
- Expectations for income in six months
Index structure:
- Present Situation Index: Current conditions assessment
- Expectations Index: Forward-looking component
- Headline Index: Composite of both
| Index Level | Interpretation |
|---|---|
| Above 100 | Above long-term average; optimistic |
| 80-100 | Moderate confidence |
| Below 80 | Pessimistic; potential spending headwind |
Base period: 1985 = 100
Worked example (October 2024):
- Present Situation: 138.0
- Expectations: 89.1
- Headline: 108.7
The gap between present situation and expectations signals consumers feel good about current conditions but are cautious about the future.
University of Michigan Consumer Sentiment
The University of Michigan surveys approximately 500 consumers monthly, asking about:
- Personal financial situation (current and expected)
- Economy-wide conditions (current and expected)
- Buying conditions for durable goods
Index structure:
- Current Economic Conditions Index
- Consumer Expectations Index
- Headline Sentiment Index
Base period: 1966 = 100
Key differences from Conference Board:
- Smaller sample, longer history
- Stronger focus on inflation expectations
- Buying conditions questions capture major purchase intentions
Inflation Expectations Component
The Michigan survey includes one-year and five-year inflation expectations—data the Federal Reserve monitors closely.
| Expectation Horizon | Fed Target Range | Concern Threshold |
|---|---|---|
| 1-Year | 2.5-3.0% | Above 4% |
| 5-Year | 2.0-2.5% | Above 3% |
Why expectations matter: If consumers expect high inflation, they may demand higher wages and accept higher prices, creating a self-fulfilling cycle.
Worked example: In early 2022, Michigan 1-year inflation expectations reached 5.4%—contributing to Fed hawkishness. By late 2024, they moderated to approximately 2.6%.
Predictive Power for Spending
Research on sentiment surveys and consumer spending shows:
| Finding | Implication |
|---|---|
| Sentiment correlates with spending | Significant but imperfect relationship |
| Expectations component more forward-looking | Focus on expectations, not present conditions |
| Large drops are more predictive than levels | A 15-point decline matters more than whether the level is 90 or 100 |
| Sentiment lags stock market | Equity gains boost sentiment, not vice versa |
The durable lesson: Sentiment surveys are better at predicting spending changes than spending levels. Watch for directional shifts.
When Surveys Diverge
The Conference Board and Michigan surveys sometimes give conflicting signals:
| Divergence Pattern | Typical Cause |
|---|---|
| CB up, Michigan down | Labor market strong, inflation concerns elevated |
| CB down, Michigan up | Job market softening, gas prices falling |
| Both declining | Broad consumer pessimism |
Why they diverge: Conference Board emphasizes labor market questions (jobs plentiful vs. hard to get). Michigan emphasizes financial conditions and inflation. Different question focus produces different results.
Survey Timing and Market Impact
| Survey | Release Schedule | Market Impact |
|---|---|---|
| Conference Board | Last Tuesday of the month | Moderate; less volatile |
| Michigan (Preliminary) | Second Friday of the month | Higher; early read |
| Michigan (Final) | Fourth Friday of the month | Lower; usually close to preliminary |
The practical point: Markets react more to the preliminary Michigan reading because it comes first and captures early-month responses.
Limitations of Sentiment Data
Political polarization effect: Since 2016, partisan identity increasingly affects survey responses. Democrats and Republicans report dramatically different sentiment depending on which party holds the White House—regardless of actual economic conditions.
Attitude-behavior gap: Consumers often report pessimism but continue spending. The gap between what people say and what they do is significant.
Media influence: Negative news coverage can depress sentiment even when underlying conditions are stable.
Common Pitfalls
- Overweighting sentiment in spending forecasts: Hard data (retail sales, personal consumption) matters more
- Ignoring partisan effects: Adjust for political polarization, especially around elections
- Treating preliminary Michigan as final: Revisions of 2-3 points are common
- Comparing levels across decades: Structural shifts in how consumers answer surveys
Checklist for Sentiment Releases
Before the release:
- Know consensus expectation
- Note recent stock market and gas price moves (sentiment drivers)
- Check for recent political events that might affect partisan responses
After the release:
- Compare headline to expectations
- Check expectations component separately
- Note inflation expectations (Michigan)
- Look for present/expectations divergence
Next Step
Track the Conference Board's "Jobs Plentiful minus Jobs Hard to Get" differential over the next six months. This labor market diffusion index correlates with the unemployment rate and provides a sentiment-based signal of labor market direction. When the differential narrows significantly, it often precedes unemployment rate increases.