Stacey Vanek Smithand Robert Smith, hosts of planet money, study the idea of predicting thefuture by using the consumer sentiment index.
This statistical measurement supposedlymeasures consumer feelings and is a possible leading indicator of how well aproduct or service would sell. Thisidea was very disputable at first, because it was an economic aspect thateconomists didn’t usually tend to look at. Even though it wasn’t very popular,it was important enough to study becauseit could’ve changed the futureof a business. Companies have to make financial decisions all the time, and sometimeslarge amounts of money are at risk. Thedecisions taken can either be very successful or complete failures, which canlead to bankruptcy.
In the hope to never fail, many businesses hire retail consultants. Many big companies have contacted BurtFlickinger, a well-known retail consultant. One of his most successful accomplishmentswas the Winnie the Pooh deal.
Flickinger was responsible to stock popular productsfor various stores. During this time, the Winnie the Pooh movie was a hugehit. With this in mind, he had to decidehow many Winnie the Pooh stuffed animals to buy. He had to figure out ifconsumers were going to buy the product months later. Flickinger chose to lookat the consumer sentiment index and made the bet from it.
This example showshow important it is to not only look at gas prices, unemployment rates, andother numerical values, but customer feelings as well. Theconsumer sentiment index was created by Richard Curtin in the 1970s. Curtin gotthe idea from George Katano, his mentor. Katona first thought of this theory byseeing how people’s fears made inflationworse in Germany.
His theory was rejected in the beginning, but became popularin 1946. No one had payed attention to him until the United Sates Federal Reserveasked him to do a nationwide survey of people’s assets. They didn’t want him toinclude “feeling” questions, but he managed to include them. He studied hisanswers and measured how people felt.
He published his results and finallygrabbed the attention of economists in the 70s. Currently,economists are still debating whether the consumer sentiment index actuallyworks. Some people like Burt use this measurement frequently and others rejectit. Nevertheless, companies still pay a lot of money to get this type of data.