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TL;DR: The Consumer Confidence Index and retail sales data reflect Americans' willingness and actual spending behavior — and since consumption accounts for nearly 70% of U.S. GDP, it is the single most important engine driving the economy.

Concepts

Why Is Consumption So Important?

The U.S. economy has a defining characteristic: personal consumption expenditure accounts for nearly 70% of GDP. In other words, whether Americans are spending money directly determines whether the economy is doing well. That is why consumption-related indicators carry so much weight in the United States.

Consumer spending breaks down into three categories: durable goods (cars, appliances), nondurable goods (food, clothing), and services (healthcare, entertainment, dining). Services make up the largest share — which may surprise many people.

Consumer Confidence Index: A Crystal Ball for Spending

The Consumer Confidence Index measures "how people feel about the economic outlook." The two most widely followed measures are:

University of Michigan Consumer Sentiment Index (UMCSENT): A long-running survey published twice a month (preliminary mid-month, final at month-end). It asks consumers about both current conditions and future expectations, giving it some leading indicator characteristics.
Conference Board Consumer Confidence Index: Uses a larger survey sample and is also closely watched by markets.

The logic is intuitive: when people are confident about the economy, they spend more freely and are more willing to borrow. When they feel uncertain about the future, they tighten their belts and spending naturally contracts.

Retail Sales: How Much Was Actually Spent

If consumer confidence represents "the desire to spend," retail sales shows "how much was actually spent."

The U.S. Census Bureau publishes monthly retail sales data. Common FRED codes include:

RSAFS: Total retail sales including food services
RSXFS: Retail sales excluding food services

A more comprehensive measure is Personal Consumption Expenditures (PCE), which covers a broader scope than retail sales, including spending on services.

There is another often-overlooked but important indicator: the personal savings rate. When the savings rate is very low, consumers have already spent most of their income, leaving limited room for future spending growth. Conversely, a high savings rate means consumers still have "ammunition" — once confidence returns, spending could rebound quickly.

Hands-On: Using CTSstock

On the CTSstock homepage (/home), the economic indicators dashboard lets you track:

University of Michigan Consumer Sentiment Index: Monitor how optimistic or pessimistic consumers are about the economy, and observe trend changes.
Retail Sales Month-over-Month Growth: Assess whether actual spending momentum is accelerating or slowing.
Personal Consumption Expenditures: Get a more complete view of the consumption picture.

It is helpful to review these alongside employment data. The logic chain is: strong employment → stable income → higher confidence → increased spending. If employment is deteriorating but consumption remains strong, it is likely being propped up by credit cards and loans — a situation that is not sustainable.

FAQ

Q: Is the Consumer Confidence Index highly correlated with the stock market? A: In the short term, extreme readings in the confidence index can be useful. When the index falls to historic lows, it is often a sign of "excessive pessimism," and the stock market tends to rebound afterward. Within normal ranges, however, the correlation between confidence fluctuations and stock performance is less clear-cut.

Q: Why does the stock market sometimes fall when retail sales are strong? A: The same logic as with nonfarm payrolls. During a Fed rate-hiking cycle, strong consumption data can make the market worry that the Fed will not cut rates. "Good news is bad news" is a common market dynamic during tightening cycles.

Q: Does Taiwan have similar consumption indicators? A: Yes. National Central University publishes the Taiwan Consumer Confidence Index, and Taiwan's Ministry of Economic Affairs reports retail sales statistics. However, because Taiwan is an export-oriented economy where consumption accounts for a smaller share of GDP than in the U.S., these indicators have less direct impact on the Taiwan stock market compared to export orders and PMI data.