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Some people totally miss the point of analyzing American spending habits probably because they are too caught up in their own personal finances. With debt and the rising costs of living, anyone would be crazy not to concentrate on the status of their finances. We all learned our lesson after the economic collapse a few years back. You want to keep your debts under control. We definitely want to make sure that the same mistakes will not be repeated - or any new ones for that matter.
But even as your primary focus is on your personal finances, it is simply not wise to keep your head down and unaware of what is happening in the country. You have to start looking around to pay attention to what national statistics and studies have found out about the behavior of the average consumer.
One of the things that you may want to look into is consumer confidence. This is defined by Wikipedia as one of the economic indicators that help measure how happy or optimistic consumers are about their personal finances and the economy in general. Although it is mainly opinionated rather than based on numbers and figures, it gives us a peek into what the average American thinks about their finances.
What is the CCI (Consumer Confidence Index)?
The Consumer Confidence Index or CCI, is the official reference to the survey that The Conference Board releases every month since 1967. This particular report gives us the data that measures how consumers are coping with their personal finances and their overall faith in the current economic situation.
Based on the report published on the Conference-board.org, for the month of November, the CCI, once again, declined. It means that consumer confidence is now at 70.4 - which is 2 points lower than the 72.4 in October. Here are the highlights of the article:
The sharp decline in October is not replicated in November but the fact remains that it is still going down (as commented by Lynn Franco, The Conference Board’s Director of Economic Indicators).
Sentiments from consumers that caused this month’s CCI results come from the stronger job market, and the economic issues that makes consumers apprehensive about their job stability and earning opportunities.
The assessment of the overall conditions also decreased. Those who thought that business is good went up from 19.5% to 19.9% while those who claim that it is bad jumped from 23% to 25.2%.
Consumer expectations also declined with only 16% believing that businesses will improve in the next six months (down from 16.6% in October). Those who expected things to get worse rose from 16.8% to 17.5%.
Anticipation for additional jobs went down significantly from 16% to 12.7%.
Income increase expectations also declined from 15.7% to 14.9%.
It can be said that the significant decrease in October and the marginal decrease in November can be attributed to the government shutdown and the debt ceiling issues that headlined recently. Consumer confidence is low but that does not really mean that a crisis is looming. As mentioned, it is mostly opinionated but of course, it still affects the buying decisions of consumers.
Confidence in the economy means higher spending
The thing is, you want to pay attention to the ups and downs of the CCI because it can influence the spending habits of consumers. It is not entirely influential but it can be significant to ignore. If you think that you could lose your job in the next few months, would you really be so casual about what you buy? Wouldn’t you be more inclined to practice smart spending to make sure that you will not run out of money when crunch time comes?
The Wikipedia definition of consumer confidence actually backs this up as it is believed that when CCI is high, consumers are more encouraged to buy.
The recent report from the Conference Board gives rise to the assumption that this could affect holiday spending - and hit retailers during one of the peak buying seasons. CBSNews.com released an article that expounds on the details provided by the November CCI.
The article said that the 80.2 consumer confidence in September went on a high dive to 70.4 - almost a drop of 10. Views from the article reveals the following:
Decrease in CCI last October stemmed from the concern regarding the impact of the government shutdown. The decrease in November is more generally focused on assumptions for the next six months.
The lower spending optimism could impact retailers and further hampen the economy’s recovery.
Holiday spending forecasts (IHS Global Insight) are looking at a growth from last year’s statistics but it is expected to be quite low.
70 of the economic activity is driven by consumer spending. Although it is not entirely reliant on the CCI as some Americans say that they tend to shop even when things are bleak - probably to hoard while the prices are low.
Americans still spent despite the low confidence because of the increase in jobs and possibly lower prices on some basic expenses like gas.
The low consumer confidence is expected to impact the economic growth of the country in the last quarter of 2013.
Experts admit that this news raises some concerns but the consumer confidence is never the sole indicator of the economy’s real health. It has something to do with other indexes that are based on figures and similarly recorded data.
How does the overall confidence of consumers affect you?
So the question remains, how does all of this affect you personally? Well, there are three important areas in your financial life that will benefit from your knowledge of consumer confidence.
Investing. The first is for investors. This is one of the signs that you need to look into if you want to invest to grow your personal wealth. For instance, if one of the companies you are buying shares on is on the retail industry, you can expect that they could suffer some setback - given the forecasted effects of consumer confidence on holiday spending. It is a very simple example but it is true how consumer behavior can affect the money market.
Spending. We all have to spend and to be smart about it, you need to know the current economic conditions - not just your ability to pay your purchases. If the consumer confidence on the economy is down (especially if it is significant), you might want to hold off any major purchases to see if there are looming problems in the horizon. In the same way, if the confidence meter is up, it may be a good sign to go ahead and make the purchase.
Saving. Lastly, the CCI gives you a hint about whether to kick your savings up a notch or you can relax and enjoy your earnings. Just like it should dictate your spending habits, you can get a hint or two about whether you should increase your savings or not.
Regardless of the current consumer confidence, you need to understand that these habits are important and should be implemented at all times. Proper financial management should always be applied - whether the economy is good or bad.
Here is a video that further explains how you can interpret the Consumer Confidence Index to help with your financial decisions.