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What is the Consumer Sentiment Index?

Direct mail campaigns are sometimes used to determine the consumer sentiment index.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 November 2014
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The Consumer Sentiment Index is a tool that is utilized to determine the general feelings toward the economy of a specified nation. This ongoing measure of consumer confidence is based on using various means of research to reveal feelings about the economy among the populace, such as the use of telephone interviews, direct mail campaigns, and more recently surveys conducted over the Internet. Several countries are home to official and unofficial indices of this type, with the oldest extant Consumer Sentiment Index operating in the United States of America.

Housed at the University of Michigan, the basic methods employed by the Consumer Sentiment Index were first developed and implemented in the late 1940’s. Under the direction of George Katona, specific criteria for collecting, qualifying and measuring consumer confidence were formulated. This work led to the creation of the Index of Consumer Sentiment, or ICS as the vehicle for getting the opinions of a cross section of the populace regarding the current economy and their views on the stability or lack thereof.

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During the early 1960’s, the Consumer Sentiment Index was enhanced to function using a scale with a value of 100 as the point of measure. Since that time, researchers who compile the data that results in the index make extensive use of telephone interviews with households around the country. Other methods such as mass mail and Internet based applications have also been tried, but telephone interviews continue to be the most efficient source of qualified data.

The general thrust of the Consumer Sentiment Index focuses on what consumers think about their own current financial situation, and how their circumstances compare with the general view of the economy. Often, the collected data will also include opinions on what consumers anticipate will happen with the economy long-term as well as short term. By conducting interviews with persons across a wide range of locales and economic situations, the index serves as a reliable tool to measure consumer sentiment in general.

There are several oft-cited applications for the data contained in the Consumer Sentiment Index. In general, the Index is considered to be a useful tool for government, business, and investors. Government can make use of the results of the monthly published Index to understand what people are thinking about the general economic climate and whether they expect things to improve, worsen, or remain the same. Businesses can make use of the data to identify consumer needs and move to meet them. Investors can make use of the data to spot consumer trends that can impact the value of various securities, and buy and sell stocks accordingly.

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shanks
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How would you comment on the statistical value of this information versus on the actual business value?

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