Effect of Layoffs and Discharges on Consumer Confidence.

Essay by knuthsUniversity, Master's March 2006

download word file, 12 pages ( 20 KB ) 3.0

ABSTRACT

This paper investigates the impact of layoffs and discharges (separations) on consumer confidence. Empirical tests are used to measure any relationship between separations and two popular consumer confidence indexes. The paper found separations can be used to predict consumer confidence three months from now.

INTRODUCTION

This paper will empirically investigate the impact on consumer confidence by separations during the period between December 2000 and August 2005. The hypothesis is that there will be a positive and significant correlation between separations and consumer confidence. It is my belief that consumer confidence is a reflection of consumers' perceptions of underlying economic conditions. I expect to find that separations will have a significant impact on those consumers' perception which will result in the expected correlation. This hypothesis will be tested statistically using employment data from the United States Department of Labor and consumer confidence indexes from the University of Michigan and the Conference Board.

BACKGROUND

Consumer attitudes regarding the economy are measured by two popular indexes; the University of Michigan Index of Consumer Sentiment (ICS) and the Conference Board Index of Consumer Confidence (CCI). These popular indexes are considered by many to be economic indicators predicting everything from presidential elections to future consumer spending. Both these indexes are widely reported in the financial media on their release each month. Popular press headlines stating unproven relationships between the indexes and the stock market, unemployment, weather, politics and war are common.

The ICS index began in 1946. The University of Michigan surveys approximately 500 people by telephone. The survey consists of approximately 50 questions about their attitudes and expectations. The responses to five questions on whether it is a good time for people to buy major consumer goods and on the family's financial condition relative to one year ago are combined to calculate the...