US: Consumer Sentiment

Fri Feb 27 09:00:00 CST 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 94.0 89.5 to 95.0 95.4 93.6

Consumer sentiment has improved sharply the last two weeks as February's final index of 95.4 is up 1.8 points from the mid-month reading. The final reading points to a roughly 97 pace for the last two weeks which doesn't show that much slowing from January's final reading of 98.1.

The sharpest moves are in the current conditions component which rose to 106.9 from 103.1 at mid month. This puts the pace for the last two weeks in the 109 area which is little changed from January's final reading of 109.3. This component points to steady rates of consumer activity for February compared to January.

The expectations component rose 1.5 points from mid-month to 88.0, pointing to a nearly 90 pace over the last two weeks. The final reading for January was 91.0. Note that expectations typically hinge on the outlooks for employment and income.

Inflation expectations are unchanged from mid-month, at 2.8 percent for the 1-year outlook and 2.7 percent for the 5-year outlook. The 1-year rate is up 3 tenths from January while the 5-year rate is down 1 tenth.

February readings on consumer spirits had been on the decline before today's report, one that underscores consumer strength, strength derived from the strong jobs market.

Market Consensus Before Announcement
The University of Michigan's consumer sentiment index remains very strong but it did move down after spiking in January, to 93.6 for the mid-month February reading versus January's 98.1 which was the best reading in 11 years. The 93.6 reading was still very solid, matching December's reading as the second best of the last 8 years.

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.