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Confidence Indicator

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A confidence indicator gauges the optimism of a group of participants in an economy or a securities market. Perhaps the best-known confidence indicator is the Consumer Confidence Index, compiled each month by the Conference Board. Another key consumer confidence indicator is the University of Michigan Consumer Sentiment Index. Each confidence indicator measures consumer optimism about their economic condition currently and six months (or, in the case of the Michigan index, a year) from now. An improving consumer confidence indicator is theoretically a good sign for stock prices: if consumers are more confident, they will buy more, and company sales and profits will rise. The problem with such a confidence indicator is that how consumers feel and what they actually do can diverge. In other words, the confidence indicator may show that consumers are pessimistic about both their current and future economic situations. Yet despite the low readings for the confidence indicator, they may continue spending at high levels.

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