The consumer confidence index has fluctuated in the past months. It increased sharply in the month of February to an index of 71.6.The index then fell moderately in the month of March to an index of 70.2 due to consumer been less optimistic about the short-term outlook that did not appear favourable to them. The consumer confidence index is currently favourable to the economy as it is above average.
Consumer confidence index is an important indicator of the economy because consumers account for the greatest portion of the gross domestic product. The consumer confidence index is an important data for the government, manufacturers, retailers and banks for their decision-making processes. A high or a rising consumer confidence index indicates a stronger consumer purchasing power, thus manufacturer will have to increase their production to meet demand.
A rise in the consumer confidence index affects the economy as consumers will be more willing to spend and invest their money, this will force manufacturers to increase their production to meet the consumer demand. Manufacturers will be forced to source for loans from banks to finance their increased production. This increased production will lead to creation of job opportunities.
Lastly, with the increased production, job opportunities and increased consumption the government will increase its revenue collection. The increased revenue collection by the government will be invested in the development of infrastructures like roads, schools and hospitals. A positive change in the consumer confidence index is likely to stimulate economic growth, as there will be increased consumption, increased manufacturing, increased employment and increased government revenue.
On the other hand, a decline in the consumer confidence index indicates consumer having a low purchasing power. Manufacturers will be forced to cut down their production and labour force because of low demand. The government will collect less revenue because of low production, unemployment of the people and less economic activity. A fall in the consumer confidence index will make the economy stagnant.
The expectation of business executives over the past few months has been optimistic about growth prospects. Most business executives are optimistic that the economic condition will improve in the next six months and that they will be in position to hire more employees. Similar optimism is also evident from the business executives in their own industries.
The consumer expectation does not match with the business executive`s expectation. The consumer expectation is higher than the business executive’s expectation.
The consumer expectation and business executive’s expectations do not match because the consumer expectation is the main driver of the business executive expectation. The consumer expectation has to rise first before the business executives expectation follows. As a result, the business will hire more employees in the next few months to prepare themselves for more production.
Most businesses will increase their production level in the coming months to meet the consumers demand. Most businesses will start increasing their inventory levels to benefit from the high purchasing power of consumers. Businesses will seek for loans from banks in order to invest in new production equipment that will enable them increase efficiency and production.
In conclusion, due to the difference in consumers and business confidence, businesses will prepare themselves to meet the consumer demand and make profit of the high consumer’s purchasing power by producing of more consumer products.