US: Consumer Sentiment

Fri Apr 17 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 95.0 92.0 to 100.0 95.9 93.0

Consumer sentiment remains very strong, at 95.9 for the mid-month April reading vs a final March reading of 93.0 and well up from 91.2 at mid-month March. The index hit an 8-year high of 98.1 in January.

A solid gain in the current conditions component to 108.2 vs a final March reading of 105.0 hints at strength this month for consumer activity, perhaps even for retail sales. The expectations component is at 88.0, up from 85.3 and pointing to rising confidence in the jobs outlook.

Gas prices are steady at low levels and are contributing to a significant downturn in inflation expectations, to 2.5 percent for the 1-year outlook vs a final reading of 3.0 percent in March. Five-year expectations are also down, to 2.6 percent from 2.8 percent.

These inflation readings are very low for this report and are certain to catch the eyes of Federal Reserve policy makers who are hoping for an increase in pressures. Low inflation expectations pose the risk of a self-fulfilling prophecy, that consumers will refrain from spending in anticipation that prices will move lower.

The other side of the coin for low inflation is that it gives consumers more money to save and more money to spend, a factor no doubt that is behind what is otherwise a favorable report and one that hints at second-quarter economic momentum.

Market Consensus Before Announcement
The University of Michigan's consumer sentiment index rebounded back up in late March. The final consumer sentiment index ended 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.

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.