The Index of Consumer Expectations is a measure of how consumers view prospects for their financial situation and the general economy over the near term and long term. The index is part of the University of Michigan’s monthly Surveys of Consumers. Created in 1946 by George Katona, the surveys document the importance of consumer spending and saving decisions as a major part of the national economy. Consumer spending represents two-thirds of GROSS DOMESTIC PRODUCT. Changes in consumer expectations influence spending decisions and have significant impact on the overall economy. Each month a minimum of 500 telephone interviews are conducted by staff members at the University of Michigan survey center; the survey includes approximately 50 questions. One question consumers are asked is, “No one can say for sure, but what do you think will happened to INTEREST RATES for borrowing money during the next 12 months—will they go up, stay the same, or go down?” When consumers’ responses are compared to the change in the prime rate (the interest rate charged by banks for short-term unsecured loans to top-quality commercial customers), consumer expectations change on average two quarters (six months) in advance of the change in the prime rate. Consumers generally anticipated interest rate changes six months in advance of the actual change. Another question asked is, “How about people out of work during the coming 12 months—do you think that there will be more UNEMPLOYMENT than now, about the same, or less?” Survey results show consumers anticipate changes in the unemployment rate nine months in advance of the actual change. In a similar question about INFLATION, consumers predict changes in prices (as measured by the CONSUMER PRICE INDEX) by three months. Survey results also show consumers generally anticipate changes in home buying and vehicle sales by six months. Business managers watch the Index of Consumer Expectations closely. Manufacturers of durable goods and housing-related products recognize the Index is an effective planning tool when making production decisions. Following the STOCK MARKET crash in October 1987, respondents to the survey displayed less panic than prognosticators on WALL STREET. Managers trusting the survey correctly concluded that stock-market fears would not greatly influence consumer-spending decisions. The Index of Consumer Expectations is included in the Leading Indicator Composite Index published by the Department of Commerce. INDICATORS included in the Commerce Department index are based on their economic significance, statistical accuracy, consistency in timing the peaks and troughs of BUSINESS CYCLES, conformity to business expansions and contractions, consistency, and prompt availability. The Index of Consumer Expectations is the only consumer survey included in the composite index. Many other countries have developed consumer expectations indices based on the Index of Consumer Expectations model.