PROBLEM 4 – PREDICTING CONSUMER CONFIDENCE

Situation:

The Conference Board produces a Consumer Confidence Index (CCI) that reflects people’s feelings about general business conditions, employment opportunities, and their own income prospects. Some researchers may feel that consumer confidence is a function of the median household income. Shown here are the CCIs for nine years and the median household incomes for the same nine years published by the U.S. Census Bureau. Determine the equation of the regression line to predict the CCI from the median household income. Does median household income appear to be a good predictor of the CCI? Why or why not? 

CCI            Median Household Income ($1,000)

116.8                 37.415

91.5                   36.770

68.5                   35.501

61.6                   35.047

65.9                   34.700

90.6                   34.942

100.0                 35.887

104.6                 36.306

125.4                 37.005

Action

Perform a correlation and regression analysis to predict CCI using household income. Discuss the following:

a. Scatter Diagram

91.5                   36.770

68.5                   35.501

61.6                   35.047

65.9                   34.700

90.6                   34.942

100.0                 35.887

104.6                 36.306

125.4                 37.005 

Action

Perform a correlation and regression analysis to predict CCI using household income. Discuss the following:

a. Scatter Diagram

b. R, R2 and 1-R2

c. Show the regression equation. Comment on the interpretation of the slope of regression equation.

d. What is the standard error of estimate value? What is the interpretation of this value?

e. Conduct the appropriate test of hypothesis for the regression model. Use a .05 level of significance. Does median household income appear to be good predictor of the CCI? Why or why not?