Search This Blog

The Conference Board of Canada - Consumer Confidence

Sep 24, 2012

About the Index of Consumer Confidence

The Index of Consumer Confidence, the Conference Board's survey of Canadian households has been ongoing since 1980. It measures consumers' levels of optimism regarding current economic conditions. This is a crucial indicator of near-term sales for companies in the consumer products sector.

It is constructed from responses to four attitudinal questions posed to a random sample of Canadian households. Those surveyed are asked to give their views about their households' current and expected financial positions and the short-term employment outlook. They are also asked to assess whether now is a good time or a bad time to make a major purchase such as a house, car or other big-ticket items.

What questions are asked for the Index of Consumer Confidence?

The Index of Consumer Confidence survey is based on four attitudinal questions. Data is collected on each respondent's age, sex, marital status, and geographic location of residence.
The four questions are:

  1. Considering everything, would you say that your family is better or worse off financially than six months ago?
  2. Again, considering everything, do you think that your family will be better off, the same or worse off financially six months from now?
  3. How do you feel the job situation and overall employment will be in this community six months from now?
  4. Do you think that right now is a good or bad time for the average person to make a major outlay for items such as a home, car or other major item?

What methodology is used for the Index of Consumer Confidence?

To construct the Index of Consumer Confidence, the percentages of positive and negative responses are calculated, by question, at the regional and national levels. Positive responses are those in which the respondent says his or her financial situation improved over the past six months or will improve over the next six months, that more jobs will be available over the near term, or that now is a good time to make a major purchase. Negative responses are defined as those in which a respondent reports a worsening of a household's financial situation over the previous six months, expects that his or her financial position will worsen or that the number of jobs will decline over the near term, or indicates that it is a bad time to make a major purchase.

The index is then derived using the following calculation for each question:

percentage of positive responses / (percentage of positive responses + percentage of negative response)

The index is the average of these values for all four questions, rebased so that 2002 = 100.

The index of consumer confidence is not seasonally adjusted. Periodically, the Conference Board tests the historical data to determine if seasonal patterns do exist, however, to date, there is insufficient evidence to conclude that seasonality is present.

Why has the methodology used to construct the index been changed?

The old methodology used to construct the Index of Consumer Confidence was derived by adding the percentage of positive responses, subtracting the percentage of negative responses, adding a scalar equal to 400, and indexing the resulting series to a base year of 2002. The scalar was introduced to force the value of the Index to zero if all responses were negative.

Relative to the new index, it is easy to see that the introduction of the scalar in the earlier method artificially lowers the variance of the index. Additionally, the new Index of Consumer Confidence is now constructed using a methodology similar to that used by The Conference Board Inc. in New York to produce its monthly estimates of consumer confidence for the United States.

The new methodology employed by The Conference Board of Canada will allow for easier comparison between changes in confidence levels in Canada and those in the United States.

Will the new methodology affect historical estimates of consumer confidence?

Yes. The new methodology has been retroactively applied to both the quarterly and monthly series available on e-Data.

The quarterly Index of Consumer Confidence began in 1980, while the monthly series began in 2002. For quarterly data after 2002, the values of each index are simply the third month in each quarter (rather than the average of all monthly values within the quarter).

No comments:

Post a Comment


Blog Archive