CEA-CNET Consumer Sentiment Index Press Briefing Video

CEA-CNET Consumer Sentiment Index Press Briefing Video Transcript

>> Today we come together to release research that has been in the works for three years, research we began really looking at in 2005 under the broader umbrella of CEA-CNET indexes. We released two components, two indexes. The first is the index of consumer expectations which really tries to capture and measure the index of, excuse me, which really tries to capture the sentiment of consumers in general for the overall economy. The second index is the CEA-CNET index of consumer technology expectations which looks at the sentiment of consumers around technology. So again this is a research that's been underway for three years. CNET and CEA have been doing joint research for six plus years, so we have a long history of working together on projects like this. Certainly, the first question that comes to everyone's mind is, why in the world do we need another metric, another index. There are other indexes available. There are other indexes out there that try to capture consumer sentiment, notably the University of Michigan's index of consumer sentiment and the Conference Board's consumer confidence index. Both of these indexes are released on a monthly basis and their aim is to capture consumer sentiment about the overall economy. We believe that our metrics add to this body of research by providing a few key elements. First of all, we use a different methodology, slightly different methodology than these two other indexes. The index we rely on really captures expectations as called for by economics. So it looks at what economists call the subjective probabilities. The Conference Board and the University of Michigan really force consumers when they reply to their surveys into a kind of plus, minus or neutral box when they respond. And that really isn't fitting because there is greater uncertainty around some of these questions. So the methodology we employ allows consumers to express uncertainty when they reply to the survey. Some of the other reasons that our indexes are important is that it provides a single measure of economic turning points. So it allows you on an ongoing basis to capture sentiment for both the economy and so you can compare it to the other indexes available like the Michigan or the Conference Board index. But it also allows, and this is an important element of the CEA-CNET index, is it allows you to measure sentiment for technology which really hasn't previously been available. And as I mentioned there, it's a single metric for the consumer technology sector. So just kind of summing up again why we think our indexes are important and that they add to the available research, is that they use a methodology that is more consistent with theoretical underpinnings of how consumers make a choice. Consumers think about things in a world of uncertainty and the current indexes available like the Conference Board in the University of Michigan index while they have a long history, certainly there are most visible flaws or that they require consumers to either be positive, negative or neutral on the questions that they're asked. So the vital, some of the big key takeaways, this is as I've already mentioned, work that we began three years ago. We first started by testing it on a panel that was then maintained by CNET. And then on the beginning of 2007, we rolled this out to the general population, so each month CEA and CNET survey a thousand individuals. We do this on a representative basis so we weighted the data so it represents the US population. We've been doing this since, as I mentioned, January 2007. So today we release not just data from July but also for the previous 18 months. So collectively we have 19 months of data that were released and this allows you to see the full time series as opposed to just getting a glimpse in time. We thought about this and researched this to first ensure that it was a strong methodology and that it was really capturing what we are hoping to capture. And then we've since made it public and have gone out with the full 19 months of data. Going forward, we will release each month's data on the fourth Tuesday of the month. So in two weeks, on the 26th of August, the fourth Tuesday of August, we will release the next data point for August. That data will be available on the website, ceacnetindexes.org, for both of the indexes, for both the consumer sentiment index as well as the technology index. So briefly, we just want to talk about some of the characteristics of the data that we believe convey why it's a measure worth looking at. This chart depicts the CEA-CNET index of consumer expectations with the University of Michigan index of consumer sentiment. As you can see, they are highly correlated. The correlation coefficient for these two indexes is 0.71. So they tend to move in tandem. From the point of market observers, that's a very good characteristic because it allows market observers to use this index just like they use the University of Michigan index or the consumer confidence index put up by the Conference Board. They move in tandem. They tend to be capturing from a headline perspective, from an overall top level perspective, similar characteristics about consumers' sentiment. And as it's depicted in the chart, it's clear that consumers over the last 19 months have become increasingly pessimistic. One of the unique aspects of our data versus some of the other data available, notably the University of Michigan's data, if you look at the five questions that make up the University of Michigan index, you'll note that the individual questions are highly correlated. So though they're asking consumers about five different elements, they tend to be capturing very similar sentiment whether they're asking consumers about general business conditions or their own financial well being. They tend to be capturing similar sentiments. So consumers are generally answering positive, negative or neutral across the board, and the correlation tends to be very high among their questions. If you look at our correlation matrix for the questions that we ask under the CEA-CNET indexes umbrella, you'll note that the Spearman rank correlation, and this is a bit technical but the rank correlations are in fact not as high as they are with the University of Michigan index. So this is a very good statistical property, a very good statistical characteristic. In other words, in each question that we ask consumers, we're capturing unique information. This is especially important with comparing the two indexes, the index of consumer expectations and the index of consumer technology expectations. You'll note that their correlations are in places negative and that in places where they are positive are much lower than we see with the University of Michigan index. So we're capturing unique information. Consumers aren't just saying yes, I'm positive about the economy and I'm positive about technology. But they're really thinking about, how do I feel about my own job security, how do I feel about my own financial well being, and then separately, how do I feel about my technology spending and my desire to buy technology. So this is a very good characteristic, something we were hoping we'd find as the data matured. We have 19 months of data and have been able to do some of these tests. We've noted that, in fact, we do have these characteristics, a very good sign that the methodology is sound. Another characteristic, and I apologize I recognize this does get in the weeds a little bit but we wanted to give you a feel for the underlying data so that you would get a sense for the characteristics that make the overall indexes sound. As you use these indexes on a monthly basis to measure and gauge consumer sentiment for both the overall economy as well as for technology, you can get a good feel for the underlying data. So if you take a look here, what this chart depicts is a segmentation of the data over time. Looking at the group that has incomes less than 30K and the groups that have incomes over 75K. What we are seeing here is the amount of uncertainty within these individual groups. And you'll notice for the red line which is the group with incomes less than 30K, their uncertainty is pretty consistent over the 19 months. If you look at the group that has incomes over 75K, you'll note that that uncertainty, as measured by standard deviation, has continued to increase over the 19 months of the data. So this suggests that those consumers with higher income tend to think more closely about being better off or worse off financially. And we've noticed that as the economy has deteriorated, they in turn had become more uncertain about their financial well being. One of the great characteristics is that over the last two months or so, that uncertainty has depth. So while the headline is that consumers remain pessimistic, we are seeing groups within the overall economy become less uncertain about the outlook. Again, a very nice statistical characteristic, nice statistical property that suggests we are capturing consumer sentiment in a unique way that better represents how consumers really feel about both the economy and technology specifically. ^M00:11:24 [ Pause ] ^M00:11:34

>> Taking a look at overall results over the last 19 months, you'll notice for the index of consumer expectations again very similar to the Michigan index and the consumer confidence index, consumers have become more pessimistic over time, very consistent with what we've seen in the economy is the economy has slowed down and deteriorated. On the other hand, looking at the index of technology expectations, consumers have held up pretty well. Their expectations for technology have held up pretty well. And Claudia, you know, has some great anecdotal stories about some of the things that she's seen in her research.

>> Yeah, I mean we've been studying this for a while and just one anecdote. I really do believe that people are just making tradeoffs. And so, while things might be changing in other parts of their lives, they still continue to have positive outlooks on CE. So, one example was I was doing some research recently and a user described to me very accurately how he had chosen to outfit his new apartment with Akia furniture because it would allow him to get a few more inches on his new flat screen TV. So it was kind of an interesting, you know again, I don't know how representative that is but an interesting story about how people are making tradeoffs when it comes to CE products they still want.

>> And I think that's very consistent with what we're seeing in the index. It's also very consistent with what we've seen in the overall economy, that consumers have moved away from and notably almost everything related to the home. So furnishings, retail sales are down significantly, home building, retail sales are down significantly while technology has held up pretty well. And I think Claudia's story really brings that home that consumers are looking at reallocating their budgets and maybe they're staying home more because gas prices have been high or they're opting for other furniture alternatives so that they can add more technology to their space. Again, these are very consistent with what we find in the indexes over the last 19 months. That while the overall sentiment for the economy has slowed and consumers have become more pessimistic. They're still pretty optimistic about technology in general. And that really comes clear when you look at the two graphs together, the two indexes together. You can see that while consumers have become more pessimistic over time, over the last 19 months, technology has held up pretty well. And you do see some of the similar zigs and zags of the data where consumers have become pessimistic about the economy that perhaps impacted slightly their sentiment on technology as they have become more optimistic for the economy that has pushed their expectations for technology up as well. So you can see the interplay of these two. This is one of the greatest elements of this data is that until now, you really haven't been able to compare consumers' overall sentiment for the economy with their sentiment for technology on an ongoing basis and that's why it makes a lot of sense for CEA and CNET to come together on this because we provide for the first time market observers with the ability measure and compare consumers' sentiment for technology with their sentiment for the overall economy.

>> I was just gonna add. I'm coming up on my nine year anniversary at CNET and then you know studying our audience and we have a lot of tech enthusiasts that visit our site but the audience overall has evolved overtime and this is the first time even though we've measured, you know past purchase behavior, future behavior intent as well as just watching traffic behavior on our site to see what people are interested in. This is really the first time that we have all the elements at work and it takes into account all the external factors at play when it comes to CE purchase.

>> And just stepping back one step further that's very consistent with what we've seen as Claudia mentions very consistent with what we're seeing in the overall space. So while consumers have become again pessimistic and remain pessimistic about the overall economy, they're still quite optimistic about technology. Down slightly from last year but still relative to the overall economy quite optimistic and it's very consistent with what CEA has seen in sales, retail sales and shipment sales for the entire space. In 2007 we saw about 8 percent growth over 2006, we project now a little over 7 percent for 2008. The other notable items here is that from January to July when we updated our forecast for 2008 we actually raised our projections for 2008 because the first six months were so strong, undeniably strong for technology. Again, very consistent with what we saw in the index. And just to drive that point home, a few of the technologies that have held up very well and tend to drive that bottom number, flat panel TVs for example are up 45 percent year to date, portable navigation which has been a very hot topic, very hot products category are up 121 percent year to date and portable MP3 players which through March were flat have had a great last few months and now year to date are up to 20 percent. So even categories that look like they were maturing as we had at in 2008 have done quite well through the first six months of the year. With that we are happy to take questions. For those of you on the webcast you can send your questions via email to ceacnetindex@cnet.com for those of you on the room we're also happy to take your questions and sorry, on those on the phone as well. So we are hitting every platform today. We are more than happy to--

>> Text message.

>> Yeah.

>> I do have some question but I wanted to [inaudible] interviews like [inaudible]. I guess I can ask them now as well if you don't mind repeating yourself.

>> Sure that will be great.

>> Okay. Sure. So can you talk--you mentioned the University of Michigan survey and how the statistical data for this is more--it's not as correlated. Do you think that this will make this survey competitive with that one? I mean how is this information going to be used compared to that survey?

>> Yeah, I think that's--sure, so the question was and it referenced how the questions within our index are--tend to be less correlated than the questions within the Michigan index are and broadly the question was how will this index be used relative to the Michigan index and will it ultimately become competitive with the Michigan index and we strongly believe that it is in fact a good alternative or a complement to both of the indexes that are widely used by financial markets, notably the Conference Board's consumer confidence index and the University of Michigan's index of consumer sentiment. We believe this uses a stronger methodology but we recognize that these other two indexes have a very long history and they've been used extensively by financial markets. But with that said, this index does come out slightly earlier in the month than the University of Michigan index and we believe it is a strong indicator of which direction the University of Michigan index will go. So that it will be widely used and can be widely used by financial analysts and market analysts in general.

>> So you said that you have surveyed 1000 people a month, is that correct? Or, okay, and--

>> Correct.

>> Was it a voluntary response survey or how does it--and how does that affect statistical value?

>> I'll take that.

>> Go ahead Claudia.

>> So it's through ORC CARAVAN. So it's a random digit dial, the response are weighted to be a representative of the US population.

>> Okay, great.

>> W have a question online regarding what questions are asked of the respondents.

>> Yeah, so one of the and we didn't really get into it but one of the great features of our methodology as opposed to other methodologies and this is all outlined in a white paper that will be available on the website. Research has shown, academic research has shown that the questions asked by both the Conference Board consumer confidence index and the University of Michigan's index of consumer sentiment tend to focus on very vague topics that are broad in nature. So what is your sentiment, [inaudible] right here but something like now turning to business conditions in the country as a whole do you think that during the next 12 months will have good times financially or bad times or what? That is the current wording in the University of Michigan index. So it deals with a very broad vague term, business conditions. What do we mean by business conditions and it also forces them to choose good, bad or kind of neutral or what. We tend to focus and academic research has shown that consumers are much more aware as you would expect of their own surroundings and of their own situations. So rather than ask consumers about their--about general financial health we ask them specifically about their financial health and do they believe they will be better off in 12 months than they are today. So it's very concrete. It's--we tried to remove some of the uncertainty in the question formatting and allow consumers to focus on they themselves. We also ask about their job and do we think that they themselves will lose a job, so it's very interesting. We also ask if they think someone they know will lose a job. So rather than asking them about general job market behavior, we ask them specifically about they themselves losing their job. As you would guess consumers are much more optimistic about them keeping their jobs than their neighbors. With technology we ask them specifically if they will purchase more technology over the next 12 months than they have. So again we're trying to drive down into and all the questions we ask will be available on the website, all of the data that we collect from these questions will be available on the website. So we hope that market observers will use this data that they will find it helpful. We hope that it will begin to build a wide literature, a [inaudible] of literature just like the University of Michigan and the Conference Board indexes have created.

>> And we really do feel like making those questions' objective speaks to the accuracy of the data at the end of the day.

>> Yeah, so rather than, again rather than choosing good, bad or ugly consumers can express a range of opinion on how they feel about their own financial health, their own job or whether they will spend on technology or not.

>> So we've got another question and I think you guys have sort of addressed this by coming online. Should we expect this index accurately reflects the current state of the economy?

>> I believe so and I definitely think we're excited for the next release with everything that's being discussed right now. We'd like to see that it continues to correlate with what were seeing in terms of the marketplace.

>> And what we've seen over the last 19 months is very consistent with what we've seen in the overall economy. There has been increase in uncertainty about the current economic conditions and that's been clearly illustrated in the data that we've been able to collect and it's also consistent with what these other indicators are suggesting. So we believe that you know it's really capturing the fundamentals and the interplay of what's going on in the economy. Are there any questions on the phone? ^M00:24:52 [ Pause ] ^M00:24:58

>> Great, if there are--

>> I've got another couple that are coming in here online.

>> We probably have time for two more questions and then we are happy to follow up later via email for any questions we didn't get to today.

>> So you've mentioned the Michigan index, the Conference Board, what tool does this index provide that we don't actually currently have access to analyze consumer sentiment?

>> So first of all I think it--one complements the indexes we do have if not supplants some of the indexes we do have for measuring overall consumer sentiment but most importantly it adds a tech component that currently isn't available. So we know that technology is increasingly becoming an important component of our economy. That's been a driving force over the last 18 months. This now allows us to measure consumer sentiment for technology specifically relative to how they feel about the overall economy in the same survey, if you will. So it really allows market observers to look at both the sentiment for the overall economy at the same time comparing it to sentiments specifically around technology. So I think that is one of the most important elements that it brings but again I don't want to understate the methodology and methodological differences between our index and other indexes available. We do believe that it adds certain elements that are consistent with what academic research has shown.

>> Another question are you gonna be looking at the CNET audience as it relates to this and how that impact with how the CNET audiences is reflecting the same thing that we're seeing versus the US population and how will you be using the CNET audience and this in this the question.

>> Well in the past, you know our partnership formed because about six years ago we started doing research with the CEA and what we do is run the same study among the US population that they would with the CNET audience and what was really interesting is what we found was that CNET audience tend to a good compass for where the market was going and so this, now, this index each month is actually more of an accurate read because it takes into account the external factors at play. So going forward what we would like to do is actually run the same exact study among the CNET audience and look at the differences among that kind of poor tech influence of our audience. So that will be an analysis that we will be doing in the future.

>> We thank you for joining us today both on the webcast, on the phone, via fax, wherever you are, we thank you for joining us. We encourage you to tune in on the 26 of August, the fourth Tuesday of the month to get the next read on both of these indexes. We encourage you to then tune in again in September for the September read. We head into a very interesting time as we head into the holidays, as we head into an economy that's quite uncertain, as we head into a political election cycle, so now is a great time to really digest this data and take a look at what it can provide you. Feel free to follow up with questions, feel free to let us know as you digest this information if things come up and we look forward to a long relationship along these indexes. Again, the website is ceacnetindexes.org. You will be able to find any and all information related to the indexes there. You'll find future white papers on the index and of course the monthly read coming out the fourth Tuesday of every month. Thanks again.