US: Consumer Sentiment

Fri May 29 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 90.3 86.5 to 99.5 90.7 88.6

Consumer sentiment has bounced back the last two weeks, lifting the final reading to 90.7 vs the mid-month flash of 88.6. The implied reading for the last two weeks is about 93 which, though down from April's 95.9 and January's peak over 98, is still very solid.

Still, there is month-to-month weakness which doesn't point to strength for consumer spending in May. The current conditions component ends May at 100.8 vs April's 107.0 in weakness that also hints at trouble for May's jobs market. A decline in the expectations component, to 84.2 from 88.8 in April, points to less confidence in the longer-term jobs outlook.

Gas prices are on the rise, up more than 5 percent from April, and are pressuring inflation expectations. One-year expectations are up 2 tenths from April to 2.8 percent as are 5-year expectations which show the same readings.

This report, like consumer confidence earlier in the week, is pointing to stability in consumer spirits, spirits that peaked earlier in the year and are now leveling.

Market Consensus Before Announcement
The mid-month plunge in consumer sentiment, to 88.6 from 95.9, has been one of May's biggest shocks. Readings deteriorated for both current conditions and expectations. If the final report for May doesn't show a big bounce, questions will start being asked about the outlook for household spending.

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.