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How the consumer sentiment index is made


Most of the vital signs for our economy, like inflation, GDP or unemployment - they tell us what's happening at the present moment. But policymakers also want to know what to expect in the future. And one of the best tools for that is the Consumer Sentiment Index. Wailin Wong and Darian Woods from our daily economics show, The Indicator, take us to the University of Michigan, where this data is compiled.

DARIAN WOODS, BYLINE: The phone lines for the Consumer Sentiment survey are open seven days a week, nearly every day of the year. It takes this kind of schedule to collect the roughly 600 survey responses that go into each month's report.

WAILIN WONG, BYLINE: When the University of Michigan first started doing this survey, interviewers went door to door. Then they switched to using telephones at a call center.

WOODS: During the pandemic, interviewers did the calls from home. And for Betsy Kirchen, that meant getting home internet service for the first time.

WONG: Did you get a Netflix subscription too?

BETSY KIRCHEN: No, I didn't. There's marvelous stuff I keep hearing about on TV. I would have loved to watch "Fleabag."

WONG: I heard her delivered this little monologue that's, like, a sales pitch, history lesson and appeal to civic duty all in one.

KIRCHEN: You know, it's not only one of the nation's leading economic indicators that we've actually been researching since 1946, it's also a unique opportunity for you to make sure that your concerns are being heard by policymakers.

WOODS: One important way that the Michigan survey helps guide policymakers is by measuring inflation expectations, so we loved this particular question.

KIRCHEN: During the next 12 months, do you think that prices in general will go up or go down or stay where they are now?

WONG: If the person responds up or down, the next question is - by about what percent do you expect prices to go up or down in the next 12 months? This is a direct question about inflation expectations, which are crucial for the economy.

WOODS: Right. Expecting higher inflation can itself contribute to higher inflation. According to the University of Michigan's latest survey, consumers expect prices to be 3.2% higher in a year's time. That is higher than the Fed's preferred level of 2%, but those consumer expectations have come down significantly from 2021.

WONG: And Joanne Hsu, the director of the survey, says overall consumer sentiment seems to have turned a corner. The broad index hit an all-time low in June of 2022, but it's rebounded since then.

JOANNE HSU: A lot of the narrative has been about how consumers feel so terrible about the economy. I mean, they still don't feel great about the economy, but they're feeling more optimistic than they did a year ago or even just a few months ago.

WOODS: Tracking consumer sentiment over time is one of the Michigan survey's strengths. Interviewers don't just cold-call people once. They also call people back for follow-up interviews. Those happen six and 12 months after the first survey.

WONG: But it's a challenge to get all those interviews. It typically takes three hours to yield one completed survey. On the day I'm shadowing Betsy, she is hitting voicemail after voicemail.

KIRCHEN: We'll certainly keep on trying to reach you from our end, but I want to make sure...

WONG: Betsy does get a couple people on the phone, but one isn't fluent in English.

KIRCHEN: Do you speak Spanish?

WONG: And then another person is receptive at first...

KIRCHEN: And in case we get disconnected, may I have your first name?

WONG: ...But changes their mind. And, you know, after hours of dialing, Betsy finally gets through to someone who agrees to do an interview, and she is ready. So I listen as she reads from her script and furiously types notes.

KIRCHEN: Now, would you say that you and your family living there are better off or worse off financially than you were a year ago?

Would you say the government is doing a good job, only fair or a poor job?

Generally speaking, do you think now is a good time or a bad time for people to buy major household items?

WOODS: These questions capture how people are thinking about saving money versus spending it on, you know, refrigerators or cars or a new house. That's useful data for the Fed because they're hoping their interest rate hikes will dampen consumer spending. But as we heard earlier, it's getting harder to gather those opinions. The survey director, Joanne, says the University of Michigan is working on ways to collect data over the internet while maintaining the same quality of responses that they get via phone surveys.

HSU: If there is a pandemic 2.0 and cellphone towers don't work anymore, we are ready.

WONG: You're like, when the zombie apocalypse comes, we're still going to be able to ask people how they feel about inflation.

HSU: And we'll add some questions about how they feel about zombies, too.

WOODS: That's important - a holistic coverage of the world that we're going to be living in.

WONG: Like, generally speaking, are zombies good for the economy or bad for the economy?

WOODS: Yeah, I'm not going to say anything bad about a zombie.

WONG: Yeah, exactly (laughter).

WOODS: Darian Woods.

WONG: Wailin Wong, NPR News.

(SOUNDBITE OF CHARLIE PUTH SONG, "LEFT AND RIGHT") Transcript provided by NPR, Copyright NPR.

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Wailin Wong
Wailin Wong is a long-time business and economics journalist who's reported from a Chilean mountaintop, an embalming fluid factory and lots of places in between. She is a host of The Indicator from Planet Money. Previously, she launched and co-hosted two branded podcasts for a software company and covered tech and startups for the Chicago Tribune. Wailin started her career as a correspondent for Dow Jones Newswires in Buenos Aires. In her spare time, she plays violin in one of the oldest community orchestras in the U.S.
Darian Woods is a reporter and producer for The Indicator from Planet Money. He blends economics, journalism, and an ear for audio to tell stories that explain the global economy. He's reported on the time the world got together and solved a climate crisis, vaccine intellectual property explained through cake baking, and how Kit Kat bars reveal hidden economic forces.