American Customer Satisfaction Index and the Economy

The ACSI Measurement Model

If you are not familiar with the American Customer Satisfaction Index (ACSI), it is a unique organization that engages in “national cross-industry measure of customer satisfaction in the United States,” as well as user satisfaction with public agencies:

This strategic economic indicator is based on customer evaluations of the quality of goods and services purchased in the United States and produced by domestic and foreign firms with substantial U.S. market shares. The ACSI measures the quality of economic output as a complement to traditional measures of the quantity of economic output.

In addition to its extensive coverage of the private sector, the American Customer Satisfaction Index (ACSI) benchmarks citizen satisfaction for a multitude of federal agencies and departments, as well as two high-usage services of local governments (police and solid waste management). In 1999, the federal government selected the ACSI to be a standard metric for measuring citizen satisfaction. Now, over a decade later, ACSI coverage of federal government continues to grow. All told, the ACSI measures citizen satisfaction with over 100 services, programs, and websites of federal government agencies.

For both government and private-sector measurement, the ACSI uses customer interviews as input to a multi-equation econometric model. Customers’ responses about a government agency are aggregated to produce its ACSI benchmark, thus results are specific to each individually measured organization. Because most agencies do not deal in economic transactions in a strict sense, the ACSI government model includes outcomes appropriate to the public sector in lieu of price-related measures.

See the full ACSI benchmarks and reports for all industries (including government) here.

Why does this matter?

The most obvious use of the ACSI econometric measurements is to provide a field poll assessment of the mood of the marketplace. It almost functions like backend support for marketers. But more interesting is the potential tie to economic activity:

ACSI’s time-tested, scientific model provides key insights across the entire customer experience. ACSI results are strongly related to a number of essential indicators of micro and macroeconomic performance. At the micro level, companies that display high levels of customer satisfaction tend to have higher earnings and stock returns relative to competitors. At the macro level, customer satisfaction has been shown to be predictive of both consumer spending and gross domestic product growth (click image for enlarged view).

ACSI National Q12015

It is interesting to compare these results with a general reading of the overall economy, such as the U.S. Economy in a Snapshot by the Federal Reserve Bank of New York, where the assessment of consumer behavior is that “spending remains tepid.” This is in agreement with an article (contrarian tone) in the Investor’s Business Daily by the ACSI’s founder from earlier this year:

Despite a flurry of good economic news, the U.S. recovery, while better than just about any other country at the moment, will not gain much momentum unless there is a substantial increase in consumer demand.

Following the February jobs report, which showed better-than-expected employment growth, many economic commentators contend the economy is poised for sizable expansion in the near future, perhaps by as much as 4% or better…But neither is likely unless consumer spending strengthens substantially. In fact, spending growth probably needs to double in order for the economy to take off.

What is particularly interesting is the correlation the IBD makes to consumer satisfaction and meager wage growth. We can understand wage growth and discretionary income, but the link to consumer satisfaction may not be as easily recognizable:

Except for nondiscretionary spending, which only increases proportionally to population growth, consumers need a reason to spend and the means to do it. Recent data from the American Customer Satisfaction Index (ACSI), which measures the quality of economic output from the perspective of the user of that output, show that customer satisfaction in the U.S. is down for a fourth consecutive quarter.

It is not that consumer standards or expectations are now higher somehow. Rather, consumers are finding the shopping and consumption experience less satisfying. Too many companies have been unable to create a satisfied customer, which, according to the late Peter Drucker, is the fundamental purpose of business.

The article concludes, from a different perspective that until there is pent up consumer demand, the modest gains (at best) are what will continue.

Labor Participation Rate Unchanged – Third Month

From the Atlanta Fed this week:

The unemployment rate declined from 6.3 percent in May to 6.1 percent in June, its lowest level in nearly six years (since September 2008). The decline to 6.1 percent was a result of a 325,000 decline in the number of unemployed persons, reaching roughly 9.5 million people. The labor force participation rate was 62.8 percent for the third consecutive month.


Yet there is still the very stubborn number of those not in the labor force (that continues to climb) reaching its current high of 92.1 million according to the BLS:

BLS Not In Labor Force 16 & Older

Population Shifts After Ten Years: 2002-2003 and 2012-2013

According to the U.S. Census, population shift has occurred for the following reasons:

Spurred in part by growth of the energy sector, some metropolitan and micropolitan statistical areas in North Dakota and west Texas are now experiencing rapid population gains, while growth has slowed or halted for some formerly fast-growing areas in the South and West.

What you immediately notice are the dark green shaded areas (representing 3+ percent growth), many of which that were, of course, where the height of the madness was occurring during the real estate boom. Some of these areas were the southwest states and especially California (generally anywhere east of the San Andreas Fault). As well as selected areas in southern states, and even a few high-growth inland areas that saw a tremendous ramp up during the early to mid-2000s such as Idaho.

The last ten seconds of the video shows a contra trend, practically wiping out growth area by area in the same manner that it appeared ten years prior. Corresponding to the quote above regarding the impetus for the current migration in recent years, you see 3+ percent growth in North Dakota as well as the current popularity of Texas. Another very interesting shift is from the north western, Reno area of Nevada to the north eastern area of the same state. What was driving that growth?

At the risk of sounding a bit like Pudd’nhead Wilson for pouring over such things, additional data sets and customizable maps for metropolitan and micropolitan statistical areas can be found here, the interactive map here.