US: Consumer Sentiment

Fri Mar 13 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 96.0 94.5 to 98.0 91.2 95.4

There appears to have been a bubble in consumer spirits late into last year and early into this one, that is a brief surge that came and went and never materialized into a rise for consumer spending. The first read on consumer sentiment this month fell very sharply to 91.2, down 4.2 points from final February for the lowest reading since November. Sentiment peaked at 98.2 in mid-month January which was the highest reading in 8 years.

The two components of the headline index both show weakness, at 103.0 for a 3.9 point decline for current conditions and at 83.7 for a 4.3 point decline for expectations. The decline in current conditions points to weakness for consumer spending this month relative to February while the decline in expectations points to a falling off in confidence for the jobs outlook.

Gasoline prices, though low, have been edging up in recent weeks and are now lifting inflation expectations which are up 2 tenths for the 1-year outlook to 3.0 percent and up 1 tenth for the 5-year outlook to 2.8 percent.

Strength in the jobs market remains an extremely key, but still isolated, positive for the economy, strength that has yet to trigger significant consumer strength. The Dow is moving to opening lows following today's report.

Market Consensus Before Announcement
The University of Michigan's consumer sentiment index improved sharply the last two weeks in February as the month's final index of 95.4 was up 1.8 points from the mid-month reading. The final reading points to a roughly 97 pace for the last two weeks which did not show that much slowing from January's final reading of 98.1. The sharpest moves were in the current conditions component which rose to 106.9 from 103.1 at mid-month. This put the pace for the last two weeks in the 109 area which was 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.

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.