The OECD Consumer Barometer: What consumer sentiment tells us in times of crisis
By Michela Gamba (Michela.GAMBA@oecd.org) & Emmanuelle Guidetti (emmanuelle.GUIDETTI@oecd.org), Statistics and Data Directorate (OECD)
The well-known quote from Nelson Mandela, “may your choices reflect your hopes, not your fears”, reminds us of the importance of optimism, rather than fear when looking ahead. Certainly easier said than done in current circumstances, with a global pandemic and its negative bearings on health, society and the economy. Since March 2020, the devastating effects of COVID-19 have undeniably marked consumers’ behaviour and significantly affected their professional and social lives. A sense of normality was lost, a distinct fear of the unknown took over, and created instability that was also reflected in the volatility of last year’s economic data, and especially in consumer surveys data.
Consumer sentiment surveys ask a representative group of consumers whether they expect their personal economic situation and the general economic situation to deteriorate, improve or remain unchanged (see below). The timeliness of consumer surveys, released at the end of the reference month, and their broad availability make them a valuable source of information for policy makers and analysts alike. These data quickly revealed the strong and unprecedented impact of COVID-19 on consumer sentiment, but also showed a diverging pattern across countries, in line with differences in restrictive measures and the sanitary and economic situations.
The rapid evolution of contaminations, the mounting pressure on hospital capacity, periods of lockdowns, schools closures and travel bans, all led to a strong decrease in consumer confidence. The difficulty to comprehend the magnitude of impacts, and the complication of translating this information into expectations for the near future, resulted in a high volatility of consumer data over the past year.
Considering the relevance of consumer sentiment information to analysts and policy makers, the OECD has developed a new tool, the OECD Consumer Barometer that further exploits and visualises consumer confidence data. The indicator, expressed as the monthly growth rate of the normalised consumer confidence indicator (CCI), has been designed with a view to clarity and reactivity in our presentation of measures of consumer sentiment. By showing the evolution over the past six months (see the map), the OECD Consumer Barometer synthesises and visualises developments in countries’ consumer confidence. Updates to the data and to the map will be accessible at the beginning of each month via the OECD Leading indicators & Tendency survey website.
OECD Consumer Barometer remains below pre-COVID-19 levels…
Demonstrating its ability to reflect shocks caused by unforeseen events in a timely manner, the OECD Consumer Barometer shows a notable and immediate drop in consumer sentiment as early as March 2020: see Figure 1. At the beginning of the pandemic, the consumer barometer for the OECD as a whole lost 2.23 points in just 2 months (from 100.48 in February 2020 to 98.25 in April) – an equally deep but much faster drop than the one observed at the outset of the Global Financial Crisis In 2008, it took 17 months to lose 2.19 points, with the depth of the trough being 97.96 in February 2009. The general anxiety at the start of COVID-19 resulted in a steep decrease of the OECD Consumer Barometer, and the persistence of this uncertainty is clearly visible in the continuing low levels of the indicator, up to the present day.
Figure 1: OECD Consumer Barometer, OECD area
Shaded areas marking recent crises
Source: OECD Consumer Barometer Database.
…registering a lot of variability across months…
Figure 2 shows the evolution of the OECD Consumer Barometer over the past 8 months for all available OECD countries. The pessimistic consumer outlook persisted throughout the first wave (March – June 2020), with optimism only taking over upon the general reduction in cases and lifting of restrictions in mid-June. While the drastic drop was felt suddenly across the world, hints of an expected recovery, at least from a consumer’s perceptive, were overshadowed by volatility over the past months. In large part, this is reflective of additional restrictive measures introduced by countries in the final quarter of 2020, in an attempt to contain a second wave of infections.
Figure 2: Evolution of OECD Consumer Barometer over recent months, OECD total
Note: Monthly growth rates for available OECD countries have been split into three categories representing respectively deterioration, stability and improvement in the consumer barometer. Categories’ boundaries have been arbitrarily set around a value of +/- 0.1 of the monthly growth rate, with below – 0.1 identifying deterioration (red bars); above + 0.1 marking improvement (green bars); and in-between the two values pointing to relative stability in the signal over two consecutive months (yellow bars).
Source: OECD Consumer Barometer (Database).
The latest data, for February 2021, shows some initial signs of renewed consumer confidence – possibly signalling the reassurance of established vaccination programmes, as well as better control over the potential surge in cases. This increase in the consumer barometer is likely to be reflected in spending patterns, as consumers become more confident about their future financial prospects and are therefore more willing to draw on their disposable income or savings. In turn, such an increase in spending means businesses might see an increase in sales, with a resulting impact on economic growth, employment and other economic indicators. However, such an optimistic message should be tempered with an acknowledgement of the volatility of the consumer barometer over the past six months, which for the most part has reflected continuing uncertainty around the COVID-19 virus and associated restrictive measures in many countries. The consumer barometer will be a helpful monitoring tool over the coming months as the global situation evolves and as successful vaccine rollouts begin to put increasing downward pressure on the incidence of COVID-19 cases.
…and showing diverging patterns across OECD countries
One year after the start of the global pandemic caused by COVID-19, the uncertainty linked to its evolution is persistent, but with substantial heterogeneity across countries. The map below (Figure 3) provides an overview of the development of OECD Consumer Barometer over the past 6 months across OECD and BRIICS countries for which the relevant data are available. Some countries show signs of a tentative recovery of consumer sentiments (closer to green), while others face stagnation (closer to red). For most countries, instability is still the dominating factor behind alternating movements over the months under consideration. A stable recovery of consumer sentiments is still far from reality, though in some cases there are timid signs of improvement (i.e. Canada, Chile, Costa Rica, Israel, Switzerland and South Africa).
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Map legend: The colour of the bar ranges from shades of reds to greens representing negative (pessimistic outlook) and positive (optimistic outlook) consumer barometer growth rates, respectively. In order to preserve cross-country comparability over the 6-month timespan, the upper and lower boundaries, as well as the colour ranges therein, are calibrated at each new release to the highest monthly growth rate in absolute values for all available countries over the period.
The measure explained
The OECD Consumer Barometer corresponds to the monthly growth rate of the normalised consumer confidence indicator (CCI). Following the definition given by the EC Joint Harmonised EU Programme of Business and Consumer Surveys, the CCI is computed as the arithmetic average of the seasonally adjusted net balances (share of positive and negative replies) of the following four questions:
- Financial situation over the past 12 months;
- Expected financial situation for the next 12 months;
- Expected generic economic situation for the next 12 months; and
- Expected major purchases for the next 12 months.
Each question has five possible answers: a lot better, a little better, the same, a little worse and a lot worse. The net balance is constructed with weights assigned on the extremes [“a lot better” and “a lot worse” with a weight of 1, “a little better” and “a little worse” with a weight of 0.5, and “the same” with a weight of 0] so for each country the CCI is calculated as follows:
 | (1) |
Where Xi,t corresponds to the net balances of the four questions (i) above.
The indicator is then seasonally adjusted by either the European Commission (for EU countries) or by the countries themselves (for non-EU OECD and BRIICS). The frequency is typically monthly, but for a few exceptions, only quarterly figures are available: Colombia, Costa Rica, New Zealand, Switzerland, India, Russia and South Africa. For those countries, quarterly data are converted to monthly frequencies by means of interpolation.
These data are then normalised by subtracting from CCI its mean and dividing by its standard deviation. A value of 100 is added for rescaling purposes. For each country c, the OECD Consumer Barometer (CB) is therefore computed as follows:
 | (2) |
| where |  | corresponds to the mean of CCIt and the SCCI to its standard deviation: |
 | (3) (4) |
In this form, an OECD Consumer Barometer reading greater than 100 signals a boost in consumer confidence towards the future, indicating an attitude to spend more on major purchases in the coming year, complemented by a modest propensity to save. Conversely, values below 100 indicate a pessimistic approach towards future developments in the economy, where saving is likely valued over consumption.
The OECD computes the zones as annually chain-linked Laspeyres indices. To learn more about the methodology please refer to the zone aggregates paragraph here.
Where to find the underlying data?
- An updated version of the map will be available here at the beginning of every month under the “What’s new” section.
- Underlying monthly normalised growth rates for the OECD Consumer Barometer are available here. The dataset covers all OECD countries with the exception of Iceland and Norway, and also covers the BRIICS countries. Major geo-economic zones (OECD Total; G7; OECD Europe; OECD excluding Euro Area; OECD & the major 6 non-member economies, and major 5 Asian countries) are calculated by the OECD and included in the dataset.
- The publication of reference is the monthly Main Economic Indicators (MEI).