Consumer and business confidence fall in the United States

One of the most interesting aspects of studying different economies is predicting how they will perform in the future in terms of the main macroeconomic variables, economic growth, employment, and inflation. A way to do this is to use consumer and business confidence as a guide to an economy's future economic prospects.

Given the size and influence of the American economy, it is interesting to examine the direction of business and consumer confidence in the US because this might give us an idea of where the world economy might be heading.

The US Conference Board Consumer Confidence Index (CCI) measures consumer confidence using a monthly survey that assesses the attitudes and expectations of American households about the economy. The CCI surveys 5,000 households each month, asking them about their expectations for business conditions, employment, and family income in the next six months.

Household responses in the index can be recorded as positive, neutral, or negative, with positive responses minus negative responses giving a net confidence figure. The base year figure of 100 was set in 1985. This means the current figure of 86 is 14 points below the 1985 confidence value. The change in the index from month to month gives economists an understanding of how consumer confidence is changing.

Consumer confidence in the US fell to a five-year low in April, with US households feeling increasingly pessimistic about their future economic prospects. The CCI confidence index fell 8 points to 86. US consumer confidence has fallen for five months in a row, the longest period of decline since the financial crisis of 2008.

The chart shows the CCI US consumer confidence over the last 20 years.

Source: https://www.conference-board.org/topics/consumer-confidence

Business confidence in the US is also declining, as business managers become increasingly concerned about the outlook for the US economy. The US purchasing managers index(PMI) measures business confidence. A key factor causing the fall in US business confidence is worries business leaders have over the US government's position on tariffs and cuts in government expenditure.

The PMI is used to measure US business confidence in a monthly survey of purchasing managers across businesses in different industries.  The questions the managers are asked are based on new orders, output, employment, stock and prices. The chart shows the US PMI over the last two years.

Source https://tradingeconomics.com/forecast/business-confidence

US business confidence is an important indicator of the US economy in the short run through business hiring and output decisions, and in the long run through business investment.

Using consumer and business confidence data comes with some problems, which make its use in economic forecasting problematic. The opinions given by purchasing managers and consumers can give an inaccurate picture of how they actually feel. People’s opinions can be affected by biases and their own honesty. There can be sampling errors in the data, and consumer and purchasing manager opinions suffer from short-term volatility.

Possible questions for discussion

1. How are business and consumer confidence measured in the US?
2. How might changes in business and consumer confidence affect aggregate demand?
3. How might current changes in US business and consumer confidence affect US economic growth in the future?
4. Discuss the usefulness of measuring business and consumer confidence for economic forecasting.