Consumer Confidence

Definition

Consumer confidence refers to the degree of optimism or pessimism that individuals have about the overall state of the economy. It reflects their willingness to spend money on purchases.

Analogy

Imagine consumer confidence as a barometer measuring people's mood towards the economy. When consumer confidence is high, it's like sunny weather - people feel positive and more likely to go out shopping or make big-ticket purchases. Conversely, low consumer confidence is like stormy weather - people become cautious and tend to save more instead of spending.

Related terms

Disposable Income: The amount of money individuals have available after paying taxes; it greatly influences consumer spending.

Marginal Propensity to Consume (MPC): A measure that shows what portion of additional income individuals will spend rather than save.

Wealth Effect: The theory that when consumers perceive themselves as wealthier due to increased asset values (e.g., rising home prices or stock market gains), they tend to spend more.