Consumer Sentiment Index

Early Development

An economic behavior research program at the University of Michigan began as part of the post-World War II planning process. Its agenda was focused on understanding the role of the consumer in the transition from a wartime economy to what all hoped would be a new era of peace and prosperity. The primary purpose of the first survey in 1946 was to collect in-person data on household assets and debts. The sponsor of the survey, the Federal Reserve Board, initially had little interest in the attitudes and expectations of consumers. Their goal was a financial balance sheet, the hard currency of economic life, not the soft data of consumer sentiment. George Katona, the founder of the survey program, convinced the sponsor that few respondents would be willing to cooperate if the first question asked was, We are interested in knowing the amount of your income and assets. First, how much do you have in your savings account? Instead, sound survey methodology required that other, more general, and less threatening questions were first needed to build respondent rapport and to establish a sense of trust and confidence with the respondents.

Katona devised a conversational interview that introduced each new area of interest with questions that first elicited general opinions before asking the detailed questions on dollar amounts. Although the sponsor was convinced that such attitudinal questions were needed for methodological reasons, Katona was told that he did not need to report any of these results since the Federal Reserve had no interest in the attitudinal findings. Ultimately, the Federal Reserve Board, as well as many others, became as interested in the findings on consumers' expectations as on consumers' balance sheets. Although the first measures of consumer expectations may seem serendipitous, it was in reality no happenstance. Katona had clear and unmistakable intentions and seized this opportunity to give life to an innovative research agenda. Katona had long been interested in the interaction of economic and psychological factors, what he termed “the human factor” in economic affairs. When Katona advocated his theory of behavioral economics, few economists listened; 50 years later behavioral economics is at the center of new theoretical developments.

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