National Economic Indicator

The American Customer Satisfaction Index (ACSI®): Largest Increase in 15 Years

August 8, 2023

• Largest quarterly gain in National ACSI since 2008
• U.S. economy improves across the board, but customer satisfaction still far below where it needs to be

After a long period of declining customer satisfaction in the United States, the second quarter of 2023 records the largest increase in 15 years. Since the satisfaction of customers is critical for a well-functioning market economy and is typically associated with economic growth, this is a welcome sign. ACSI increased by 0.7%, consumer spending by 1.6%, and GDP by 2.4%.

These have not been ordinary economic times. COVID-19 and Russia’s invasion of Ukraine caused inflation and supply chain problems, including lack of both products and services available for many consumers. Long waiting lines and poor service have been common. Consumer demand was no longer dependent on customers’ expected or realized satisfaction, which dropped to levels not seen in about 20 years.

It is important to remember, however, that the decline in customer satisfaction actually began even before the economic shocks of the pandemic and the war in Ukraine, primarily due to use of consumer data analytics ill-fitted to consumer satisfaction data (Remarks by the ACSI Chairman). Over a period of about four years, from late 2018 until mid-2022, customer satisfaction dropped almost every quarter. Eventually, the satisfaction of American consumers fell to its lowest level in nearly 20 years. Nevertheless, beginning in the second half of 2022, four consecutive upticks suggest that the worst might be over.

The current movement in aggregate customer satisfaction is due to gains in several large industries, including automobiles, household appliances, and personal computers. Company-level data for these industries are to be released by ACSI in August  (automobiles) and September (household appliances and personal computers). There have also been improvements in categories such as search engines and information and, to a lesser extent, social media.

Overall, the consumer economy, for which customer satisfaction and consumer spending are critical, has exhibited very unusual characteristics over the past three to four years. The effort to curb inflation via higher interest rates has not impacted labor markets as it typically does. Instead, there has been a stronger demand for labor, often unfilled, which has led to a decline in services and longer waiting lines, thus leading to weaker customer satisfaction. Higher interest rates do not seem to have impacted corporations much either. Most data suggest that corporate net interest payments have fallen due to a shift to long-term fixed debt. All in all, this might well explain why there has not been a recession with large unemployment to follow.

In sum, inflation is much reduced, customer satisfaction is up, the economy is growing and consumers are spending. If this trend continues, it will be a very unusual result given the threatening economic obstacles. Although it does not guarantee a soft landing and unless there are more unknown shocks to come – there are still questions about U.S. debt and possible further downgrading – the latest ACSI results point to a return of customer satisfaction as a main driver of profits and stock prices, as well as better economic growth fueled by consumer spending.

While companies today have more data about their customers, the analytics employed to turn data into information are for the most part not good enough. Customer satisfaction data have certain characteristics that make it difficult to obtain accurate estimates, to pinpoint what aspects of the customer experience need attention, and to gauge the financial impact of actions contemplated. Traditional statistical methods assume normal frequency distributions among the residuals, moderate multicollinearity, and low levels of data noise. Customer satisfaction data don’t meet these assumptions.

ACSI Analytics is designed to overcome these problems and thereby turning raw data into financially relevant information by:

• Separating signals from noise
• Moving from correlations and artificial intelligence (AI) patterns to cause-and-effect interpretations
• Calibrating measurement instruments toward profitability

Data is not the same as information—especially not data from consumer surveys. Management decisions require information; raw data must be filtered in order to be useful for decision-making. ACSI technology filters out data noise.

Management decisions require cause-and-effect information—something that current CX tools, whether based on AI or descriptive statistics, don’t provide. ACSI Analytics, on the other hand, is based on a causal model.

There is a wide disparity in the amount of consumer data collected by companies today. Some data suppliers use surveys with more than 200 questions per respondent, while others focus on responses to a single question. Neither is appropriate.

Survey respondents are generally unable to provide reliable or valid information for more than 30 questions. According to University of Michigan research, long questionnaires should not be used as they lead to straight-line responses. At the other end of the spectrum, good measurement techniques—whether in the social or physical sciences—typically require several measures (survey questions in this case) per product feature or service dimension.

Accuracy and relevance are what matters. To contribute to the business objectives at hand, the measurement instruments need calibration in ways similar to the physical sciences. This is why companies with high scores in the American Customer Satisfaction Index, which is calibrated to maximize customer loyalty, are financially successful, most notably in terms of stock returns and profitability.