Arguably the human needs will always surpass the resources at our disposal; hence we always strive to look for resources to satisfy these needs. As such, we are forced to save as much as we can. On the other hand, we carefully and cautiously utilize the little we have as we continue to search for more resources. Thus, when secure a good source which can generate enough income/resources to meet our immediate and long term needs. We break from our initial norm of saving and cautious spending to saving less and consuming more since our purchasing power has increased. Therefore, this measure of ability and optimism the consumers have on their financial status and the economy in general is what constitute the consumers’ confidence. Thus, the consumers make economic decisions on spending, saving, investing, borrow or lending based on their confidence they have on the resources at their disposal or from what they are projecting to gain in near future.
Thus, as noted, the consumer confidence is a significant component which shapes the economy of the country. This is because it influences major decision-making process from the individuals to multinational companies. In essences, if the figure projected by CCI (consumer confidence index board) is high, this means the consumers will spend more by increasing their purchase. However, if the confidence index is low, this indicates the consumers are planning to spend less and save as much as they can. These two scenarios of high and low consumer confidence are followed by a series of decisions across the economy from individual, governments to major companies in the country. The consumer confidence is data that is collected by the consumer confidence index board from various stores where consumers purchase various items. The data is collected monthly through a survey which is aimed at finding how consumers behave during a certain period of the month (The Conference Board, 2014).
The number is given in the form of a percentage by the consumer confidence index board. The index gives the producer an indication on how the consumers are willing to make the purchase in general. Thus, the producer and retailer are interested in this number so that they can make importance decisions on whether to produce more or cut the volume of production.
A low consumer confidence, results in consumers deciding to spend, borrow less and save as much as they can. Additionally, this forces some consumers to decide to look for better jobs with good salaries that will increase their purchasing power. On the other hand, some workers decide to engage in some potential income generating activities (such as singing, coaching, sports) beside their main jobs to increase their income and eventually their purchasing power. A low consumer confidence is perceived to originate from consumers’ perception that their financial ability will not be able to sustain them for a long term in judging t from the current status of the economy. In addition, many retail shop resort to maintain the current prices or lower so that they can retain their current customers. This is because an increase in prices will push their current customers to competitors. Thus, period is characterized by stabilized prices that are manageable by a large number of consumers. Additionally, the consumers are choosy on what product to purchase. Here the consumers make a decision on the product that they really want to satisfy their urgent needs (Biswas et al., 2011).
On the other hand, low consumer confidence, force to change their operations plans so that it can fit the current trend in the market. This is because many consumers are expected to purchase few commodities since their purchasing power has reduced. Thus, many companies since they are projecting low sales due to decreasing in the consumers’ confidence will decide to lower their level of production. Many businesses, due low demand, will produce what they expect will be purchased. Excess production will result in losses since there won’t be buyers to the excess products. Furthermore, many companies may decide to lay off excess employees who they don’t need. This is because the low sales mean low profits for the company. The low profits will not allow the company to retain a large workforce which cannot be sustained. Hence, the company has to reduce its labor force to a number which is efficient to run the activities of the company and which can be supported by the revenues that the company generates. The supply of the inventory will decide to reduce the supplies to the companies since they are expecting decrease in demand. Consequently, the financial sector follows suit by deciding to lower their concentration on the activities revolves around lending. Start concentrating on the saving services to customers since they are expecting an increase in the demand for saving packages. Moreover, the government will expect low revenues generated by taxes since the consumers are consuming less. Thus, the government may be forced to suspend some programs since the revenues that are expect to be generated might not support all the programs which the government wants to undertake. Therefore, the government may decide not to increase the taxes so that the price of many commodities to remain stable and encourage consumers to continue making purchases (Chandra, 2014).
However, if the consumer confidence is high (which means the consumers are contended with their current financial status and expecting the economy to do well) there would be an increase in consumption of goods and services. This is because the consumers feel their financial status can sustain them for a long a period. As such, increases in consumer confidence mean the majority of the consumers have reliable financial means which are boosting their purchasing power. Thus, many companies are expected to increase their level of product to meet the expected increase in demand for goods and services. It is also expected many consumers will be will to borrow or take things on credit since they know they have the means to pay. Hence, financial companies are expected to shift their attention from savings to credit/loan services (Chandra, 2014).
Works Cited
Biswas, Dipayan, Guangzhi Zhao, and Donald R. Lehmann. "The impact of sequential data on consumer confidence in relative judgments." Journal of Consumer Research 37.5 (2011): 874-887.http://www.jstor.org/discover/10.1086/656061?uid=2&uid=4&sid=21104391449511
Chandra S. "Inflation Shy of Goal Means Fed Can Keep Rates Low: Economy." Bloomberg. N.p., 2014. Web. 23 Oct. 2014. <http://www.bloomberg.com/news/2014-10-22/consumer-prices-in-u-s-rise-0-1-as-inflation-remains-muted.html>.
The Conference Board. "Consumer Confidence Index® | The Conference Board." The Conference Board | Trusted Insights for Business Worldwide. N.p., 2014. Web. 23 Oct. 2014. <www.conference-board.org/data/consumerconfidence.cfm>.
