Stacey Vanek Smith
and Robert Smith, hosts of planet money, study the idea of predicting the
future by using the consumer sentiment index. This statistical measurement supposedly
measures consumer feelings and is a possible leading indicator of how well a
product or service would sell.
idea was very disputable at first, because it was an economic aspect that
economists didn’t usually tend to look at. Even though it wasn’t very popular,
it was important enough to study because
it could’ve changed the future
of a business. Companies have to make financial decisions all the time, and sometimes
large amounts of money are at risk. The
decisions taken can either be very successful or complete failures, which can
lead to bankruptcy. In the hope to never fail, many businesses hire retail consultants.
Many big companies have contacted Burt
Flickinger, a well-known retail consultant. One of his most successful accomplishments
was the Winnie the Pooh deal. Flickinger was responsible to stock popular products
for various stores. During this time, the Winnie the Pooh movie was a huge
hit. With this in mind, he had to decide
how many Winnie the Pooh stuffed animals to buy. He had to figure out if
consumers were going to buy the product months later. Flickinger chose to look
at the consumer sentiment index and made the bet from it. This example shows
how important it is to not only look at gas prices, unemployment rates, and
other numerical values, but customer feelings as well.
consumer sentiment index was created by Richard Curtin in the 1970s. Curtin got
the idea from George Katano, his mentor. Katona first thought of this theory by
seeing how people’s fears made inflation
worse in Germany. His theory was rejected in the beginning, but became popular
in 1946. No one had payed attention to him until the United Sates Federal Reserve
asked him to do a nationwide survey of people’s assets. They didn’t want him to
include “feeling” questions, but he managed to include them. He studied his
answers and measured how people felt. He published his results and finally
grabbed the attention of economists in the 70s.
economists are still debating whether the consumer sentiment index actually
works. Some people like Burt use this measurement frequently and others reject
it. Nevertheless, companies still pay a lot of money to get this type of data.