You may have heard of the GfK Consumer Confidence Index or barometer published each month in the UK. But what is it and what questions are consumers asked to derive this measure?
For nearly 90 years GfK – Growth from Knowledge – has provided industry and business a crucial lens into consumers’ buying behaviour so that they can better understand what is impacting their markets, brands and media trends. Their research and data management provides companies insight into current consumer psychology. In July 2023 combined with NielsenIQ (NIQ), another industry leader, to form the world’s leading consumer intelligence company.
Taking consumers’ financial pulse and putting their evolving economic and financial opinions into context helps businesses address several key issues including product range, pricing, marketing strategies and emerging societal trends – the things that influence consumer purchases.
The monthly Consumer Confidence Index is closely watched. To measure changes in consumers’ optimism (or pessimism), respondents are asked the following five questions to rate the relative level of both their personal financial situation and the general economic situation over the past 12 and forthcoming 12 months. The most recent Consumer Confidence Index survey was conducted among a sample of 2000 individuals aged 16 plus deemed representative of the UK population.
To gauge opinion on their personal financial situation respondents are asked “how has the financial situation of your household changed over the last 12 months?” and “how do you expect the financial position of your household to change over the next 12 months?”.
On the general economic situation, they are asked “how do you think the general economic situation in this country has changed over the last 12 months?” and “how do you expect the general economic situation in this country to develop over the next 12 months?”.
The answers to each of the above fall into categories: ‘a lot better’, ‘a little better’ ‘stay(ed) the same', ‘a little worse’, ‘a lot worse’.
Important to businesses which rely on consumers’ discretionary spend and all the more pertinent given the continuing cost-of-living challenge, is the question on major purchases and the timing of such purchases: “in view of the general economic situation, do you think now is the right time for people to make major purchases such as furniture or electrical goods?”, with answers in categories 'right time’, ‘neither right nor wrong time’ ‘wrong time’.
The answers are collated for all five measures and compared with the previous month and those for a year prior. The five measures are combined into an overall index score. For the individual measures and the overall index, a reading above zero indicates optimism, below zero indicates pessimism. Does the reading point to improvement, resilience and momentum? A rising trend would gladden the hearts of both retailers, as it would point to stronger purchases and consumption, and also those watching for signs of optimism to feed into economic growth.
Commented on but not included in the overall index score is the question on savings: “In view of the general economic situation do you think now is? (a very good time to save – a fairly good time to save – not a good time to save – a very bad time to save)?”
More recently, the index had risen this year from the post-pandemic low seen around the fourth quarter of 2022, as the strength of consumers’ personal finances, due to strong wage amid a tight labour market, offset their concerns about the UK economy. The rise in confidence presaged improvements in retail spending.
But sentiment reversed course sharply in October. The GfK indicated that this was due to a range of factors, including the cost of living, higher debt costs, rising petrol prices and uncertainties around the situation in the Middle East. Retail sales data from various sources showed that lower confidence is already affecting activity, suggesting a weaker outlook for retailers over the rest of the year.