University of Michigan Consumer Sentiment Index

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The University of Michigan Consumer Sentiment Index is a consumer confidence index published monthly by the University of Michigan. The index is normalized to have a value of 100 in December of 1964.

The consumer confidence measures were devised in the late 1940’s by George Katona at the University of Michigan. There have now developed into an ongoing nationally representative survey based on telephonic household interviews. The Index of Consumer Sentiment (ICS) is developed from these interviews. It gives a very accurate indication of the future course of the national economy. The Index of Consumer Expectations (a sub-index of ICS) is included in the Leading Indicator Composite Index published by the U.S. Department of Commerce, Bureau of Economic Analysis.

The Index was created and still is published with the following objectives:-

• Near time assessment of consumer attitudes on the business climate, personal finance, and spending
• To create capability for understanding and forecasting changes in the national economy
• To provide means to directly incorporate empirical measures of consumer expectations into models of spending and saving behavior
• To forecast the economic expectations and the future spending behavior of the consumer
• To judge the level of optimism/pessimism in the consumer’s mind

The Index of Consumer Expectations focuses on three broad areas:-

• How consumers view prospects for their own financial situation
• How they view prospects for the general economy over the near term
• Their view of prospects for the economy over the long term

This Index has implications which can influence the following:-

• Stocks
• Bonds
• Dollar