Consumer Sentiment Surveys: Worldwide Review and Assessment

Consumer sentiment surveys are regularly conducted in at least forty-five countries. The surveys are based on the premise that data on consumer expectations represent a leading indicator of future changes in the macro economy. A series of Granger causality tests indicated that measures of consumer sentiment both predict and are predicted by a wide range of economic variables, although the data exhibit substantial differences across countries and across variables. The predictive performance was not found to be directly related to differences in sampling, question wording, or index construction. Several recommendations are given to enhance the predictive performance of consumer sentiment. First, a new conceptualization of consumer sentiment is now warranted based on changes in the knowledge and sophistication of consumers, the increased availability of economic information, shifts in the composition of demand, and changes due to an aging population. New survey measurement techniques are needed as well. Preliminary data on numeric probability scales indicate that there are advantages and disadvantages to a shift away from the now commonly used verbal likelihood scales. Second, new analysis models are proposed that would disaggregate consumer spending into its components as well as disaggregate the consumer data into separate demographic and economic subgroups. Third, changes in the survey administration are proposed. The shift away from telephone surveys will be due to falling response rates, especially among younger adults; the shift toward internet surveys will be due to their greater capacity to handle much more complex measurement strategies. Finally, the very notion of worldwide harmonization must also evolve; shifting its main focus from the input questions to the output indices so as to encompass a greater range of diversity in measurement methodologies. The basic premise of the consumer sentiment surveys has been affirmed by past measurements, and with appropriate developments, the consumer sentiment surveys can provide even more robust and timely forecasts of trends in the macro economy in the future.