c07 JWBT016-Busby October 1, 2008 21:9 Printer: TBD
86 STRATEGIES TO WIN
Consumer Confidence Indexand the University of Michigan’sConsumer
Sentiment Index.The Consumer Confidence Index is a compilation of data
derived from a survey of consumer attitudes about the health of the econ-
omy. This survey is conducted by a business-backed research group based
in New York. Each month, this group surveys 5000 consumers across the
United States. This data reflects patterns in consumer attitudes and spend-
ing. When consumers believe that the economy is not doing well, they tend
to tighten their belts and spend less. Likewise, if they believe that the econ-
omy and their personal financial health is in good condition, they are more
likely to spend freely. Obviously, consumers who are optimistic about the
future will be more willing to buy items that they need and want. Because
consumer spending accounts for more than two-thirds of the overall econ-
omy, the financial markets respond to consumer confidence data.
Another report that reflects consumer confidence is the University of
Michigan study. This report was first compiled in the 1940s, and it is re-
spected and watched by many traders. Like the Consumer Confidence In-
dex, this data reflects attitudes of consumers and their pessimism or opti-
mism about the overall health of the economy. The financial markets often
react irrationally. That is, emotion may be the driving force behind a rally
or a sell-off. For that reason, the attitude of consumers about the economy
is very significant, making these regularly scheduled economic reports im-
portant to the markets and to traders.
TheConsumer Price Index (CPI)is a measure of the average price
level of a fixed basket of goods and services purchased by consumers each
month. The items in the basket and the services purchased remain constant
month after month so that price changes may be tracked and inflation mon-
itored. This report is the most widely followed indicator of inflation in the
United States. When inflation is up, consumers spend more money for their
living expenses and cash is siphoned from the economy. Interest rates also
rise as the Federal Reserve’s Open Market Committee works to slow infla-
tion and keep the economy moving at an optimum rate. The CPI has the
power to be a real market mover. It is watched closely by governmental
entities and traders.
This is one economic report you do not want to miss. Traders around
the world listen intently to the CPI numbers because they know the reper-
cussions of rising inflation. This is an important report for the general econ-
omy and for the financial markets.
Durable goods ordersreflect the new orders placed with domestic
manufacturers for immediate and future delivery of factory hard goods like
automobiles, appliances, and computers. This data is compiled by the De-
partment of Commerce and reflects both consumer demand and business
spending. There are advance reports and follow-up reports. Often, there
are revised reports as well. These statistics are also carefully watched by