US: Consumer Sentiment

Fri Mar 27 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 92.1 91.0 to 95.0 93.0 91.2

Consumer sentiment has been very bumpy so far this year, up sharply in January then back down in February and into the first half of March but now rebounding back up in late March. The final consumer sentiment index ends March at 93.0, up 1.8 points from mid-month March of 91.2 and implying a late March trend of roughly the 95 area. This is a very solid area and next only to January's 8-year-high of 98.1.

The index has two components, both showing gains in the last two weeks of the month. The current conditions component rose to a final 105.0 from the mid-month's 103.0 to imply a 107 area for the last two weeks. This compares with February's 106.0 to indicate the possibility of accelerating consumer activity. Strength here also underscores the current health of the jobs market.

The expectations component also rose, up 1.6 points from mid-month to 85.3 which, for the last two weeks, implies the 87 area which compares steadily with 88.0 for final February. Expectations hinge on the outlook for jobs.

For inflation expectations, the price of gas plays a key role and pump prices, though low, have been going up. One-year expectations are at 3.0 percent vs 3.0 percent at mid-month and 2.8 percent in February. Five-year expectations are at 2.8 percent vs the same reading at mid-month and up 1 tenth from February's 2.7 percent.

With exports in the tank due to the strong dollar and weak foreign demand, the domestic economy -- dominated as it is by the consumer -- is the economy's bread and butter right now. Readings on consumer spirits may now be bouncing back but it is important to remember that the spike higher early in the year never materialized into accelerated consumer spending.

Market Consensus Before Announcement
The University of Michigan's consumer sentiment index for the first read on March 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.

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.