US: Consumer Sentiment

Fri Feb 13 09:00:00 CST 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 98.5 96.5 to 100.2 93.6 98.1

Consumer sentiment remains very strong but it did move down after spiking in January, to 93.6 for the mid-month February reading vs January's 98.1 which was the best reading in 11 years. The 93.6 reading is still very solid, matching December's reading as the second best of the last 8 years.

The fall back for the index is divided about equally between the two components, current conditions at 103.1 vs 109.3 and expectations at 87.5 vs 91.0. The dip for current conditions points to possible slowing in consumer activity this month, while the dip in expectations points to a little less optimism in the outlooks for jobs and income.

Gas prices are low but haven't been falling any further this month. One-year inflation expectations are up a sizable 3 tenths to 2.8 percent which however is still low for this reading. In an offset, 5-year expectations are down 1 tenth to 2.7 percent.

The prior spike for consumer sentiment offered a leading indication on gains in the jobs market but not on consumer spending which is still flat. And today's report doesn't point to any improvement. These results will lower expectations for the consumer confidence index at month's end, a separate report that also posted an outsized spike in January. The Dow is moving off opening highs.

Market Consensus Before Announcement
The University of Michigan's consumer sentiment index held on to its very strong surge at the beginning of the month, ending January at 98.1 versus the mid-month reading of 98.2 and compared against 93.6 in December. The current conditions component extended its first half gain to 109.3 versus 108.3 at mid-month and against 104.8 in December. The comparison with December points to strength for January consumer activity. The expectations component ended January at 91.0 versus 91.6 at mid-month and 86.4 in December.

The University of Michigan's Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending. Consumer confidence and consumer sentiment are two ways of talking about consumer attitudes. Among economic reports, consumer sentiment refers to the Michigan survey while consumer confidence refers to The Conference Board's survey. Preliminary estimates for a month are released at mid-month. Final estimates for a month are released near the end of the month.

The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Consumer confidence did shift down in tandem with the equity market between 2000 and 2002 and then recovered in 2003 and 2004. More recently, the credit crunch and surge in gasoline prices led confidence downward in 2007. Despite a drop in gasoline prices, 2008 saw sentiment near record lows due to recession, a precipitous fall in stock prices, and fragile credit markets. However, consumer sentiment helped to confirm the easing of recession during 2009 as this index slowly rose from earlier lows. One should be aware that this report is released to private subscribers several minutes prior to release to the media. This may account for occasional market activity just prior to public release.

Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.