Academic journal article Economic Review - Federal Reserve Bank of Kansas City

Consumer Confidence after September 11

Academic journal article Economic Review - Federal Reserve Bank of Kansas City

Consumer Confidence after September 11

Article excerpt

The terrorist attacks on September 11 dealt a serious blow to the U.S. economy. The damage included the tragic loss of human life, massive property destruction, and disruptions to the travel and shipping industries. But immediately after the attacks, many observers also worried about the possible harm to business and consumer confidence. Although the effects on business confidence are hard to measure, regular surveys of households make it easier to assess the effects on consumer confidence. These surveys show that consumer confidence was surprisingly resilient.

Faced with this resilience, forecasters and policymakers struggled to interpret the movements in consumer confidence. Did consumers quickly return to more normal economic behavior even though they were shocked by the terrorist attacks? Or was the resilience somehow illusory? Were measures of consumer confidence actually lower than would be expected based on prevailing economic conditions? The answers to these questions might have implications about the economic outlook or the proper settings for monetary and fiscal policy.

This article examines the impact of the terrorist attacks on consumer confidence at the end of 2001. The first section describes the two major measures of consumer confidence and summarizes their recent behavior. The second section shows that consumer confidence indexes typically produce small improvements, at best, in forecast accuracy. The third section finds that the terrorist attacks did not cause a clear weakening of consumer confidence after September 11. As a result, the consumer confidence indexes maintained a fairly normal relationship to other economic indicators and did not contain much new information for forecasters and policymakers. The resilience of consumer confidence may have offered some assurance, however, that the worst fears about the economic outlook would not be realized.


Analysts paid increased attention to the two major measures of consumer confidence after September 11. The Conference Board's index is named the Consumer Confidence Index, while the University of Michigan's index is the Index of Consumer Sentiment. To minimize confusion, this article will refer to these measures as the Conference Board index and the Michigan index, using the term consumer confidence in a more generic sense. This section describes these two widely cited indexes and summarizes their recent fluctuations.

Description of the indexes

The two major confidence indexes are broadly similar in design but differ in many details. Both indexes reflect monthly surveys of U.S. households. The Conference Board mails its survey to 5,000 households each month, receiving about 3,500 responses, whereas the Survey Research Center at the University of Michigan conducts a telephone survey of at least 500 households. Both organizations release their full survey results near the end of the month, putting these indexes among the earliest indicators of monthly economic activity. The University of Michigan also releases a preliminary value of its index near the middle of each month, reflecting responses collected during the first part of the month.

Although both indexes focus on five main questions about current and expected conditions as described in the box, the surveys differ in how the questions are worded and the time periods for which households provide their expectations. For example, only the Conference Board index specifically reflects household views about job availability and total family income, while only the Michigan survey inquires whether it is a good time to buy major household items.1 The Conference Board asks questions about household expectations for the next six months, while the University of Michigan requests household views covering the next year or the next five years.

The Conference Board and the University of Michigan also produce subindexes relating to current and expected economic conditions. …

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