Consumer sentiment and expectations peak

Consumer sentiment improved dramatically during the week ended November 27. The consumer sentiment index saw an 8 per cent increase, the most since January 2016, when the index was launched.


The unemployment rate also fell sharply to 4.7 per cent, its lowest level since January 2016.


The sharp fall in unemployment and the correspondingly sharp increase in consumer sentiment show a big improvement in the overall conditions of households in India.


The week ended 27 November saw the government changing its stance on the conversion of Rs 500 and Rs 1,000 currency notes several times. It reduced the limit of conversion from Rs 4,500 to Rs 2,000; it introduced ink marks on fingernails to disallow multiple conversions; then, it stopped conversions at banks altogether, and it made announcements that large deposits (over Rs 50,000) into Jan Dhan accounts would be investigated.


Changes in "rules of the game" were fast and substantial during the week. Stories abounded of the arbitrariness of such announcements and of the hardships these caused. But, the result of the survey is unequivocal – sentiment is at its best since January 2016. More importantly, it is at its highest level because it grew the fastest in the past week. This almost implies that the several changes in the rules of the game have been appreciated by the public.


The sentiment survey we conduct does not seek a view on these announcements. It is not a referendum, through a poll, on demonetisation. Nevertheless, we expect changes in sentiment to reflect the impact of demonetisation on households.


The questions we ask are on the economic well-being of households and their expectations for the future. The overall Index of Consumer Sentiment (ICS) comprises two components – the Index of Current Economic Conditions (ICC) and the Index of Consumer Expectations (ICE). These components throw a more important light on the sentiment amongst households today.


Both components -- the ICC and ICE spiked during the week ended November 27. At 102.7 the ICC was close to its peak level, and at 109 the ICE peaked during the week (compared to a base of 100 during September-December 2015). Expectations were much higher than the current economic conditions. This phenomenon of higher expectations compared to the current conditions has been a constant since the beginning of the year.


Current economic conditions, as well as consumer expectations, grew handsomely during the week – 9.1 and 7.4 per cent, respectively. Both these growth rates are much higher than the average weekly change seen in the past data.


A busy sowing season of the rabi crop has possibly helped keep unemployment low. Queues outside banks and ATMs have reduced. Unemployment has been falling steadily since August 2016. It fell sharply in the Diwali week. But, it had risen during the following week. The fall in the latest week shows that the trend of falling unemployment rate has been sustained. Large-scale loss of jobs because of demonetisation is not evident in the data.


Reportedly, entrepreneurs have merely reduced shifts or working days per week but kept employment stable.


Sentiment gauge


Unemployment gauge


Consumer sentiment indices and unemployment rate are generated from CMIE's Consumer Pyramids survey machinery. The weekly estimates are based on a sample size of about 6,500 households and about 17,000 individuals who are more than 14 years of age. The sample changes every week but repeats after 16 weeks with a scheduled replenishment and enhancement every year. The overall sample size run over a wave of 16 weeks is 158,624 households. The sample design is of multi-stratrification to select primary sampling units and simple random selection of the ultimate sampling units, which are the households.

The Consumer Sentiment index is based on responses to five questions on the lines of the Surveys of Consumers conducted by University of Michigan in the US. The five questions seek a household's views on its well-being compared to a year earlier, its expectation of its well-being a year later, its view regarding the economic conditions in the coming one year, its view regarding the general trend of the economy over the next five years, and finally its view whether this is a good time to buy consumer durables.

The unemployment rate is computed on a current daily basis. A person is considered unemployed if she states that she is unemployed, is willing to work and is actively looking for a job. Labour force is the sum of all unemployed and employed persons above the age of 14 years. The unemployment rate is the ratio of the unemployed to the total labour force.

All estimations are made using Thomas Lumley's R package, survey. For full details on methodology, please visit CMIE India Unemployment data and CMIE India Consumer Sentiment.

The creation of these indices and their public dissemination is supported by BSE. University of Michigan is a partner in the creation of the consumer sentiment indices.


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