US: Consumer Sentiment

Fri Jun 12 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 91.2 89.0 to 93.0 94.6 90.7

This week's retail sales and consumer sentiment reports offer a one-two punch. Consumer sentiment is back on the climb, jumping nearly 4 points to 94.6 which is well above the Econoday consensus for 91.2. The gain is centered in the current conditions component, up 6.0 points to 106.8, which offers an early signal for June-to-May consumer strength. The expectations component shows a smaller but still healthy gain, up 2.6 points to 86.8. The gain here points to confidence in the jobs outlook.

Gas prices have been edging higher but are not affecting inflation expectations which ticked lower, down 1 tenth to 2.7 percent for both the 1-year and 5-year outlooks.

Consumer sentiment is back near its best readings of the recovery, posted earlier in the year, and the gain in current conditions hints at another strong month for retail sales. The FOMC has been tracking consumer confidence readings and today's report is a little bit more ammunition for the hawks at next week's meeting.

Market Consensus Before Announcement
Consumer sentiment remains in solid ground and is expected to rise slightly for the flash June reading, from 90.7 in May to 91.2. The current conditions component of this report offers the first look at how June is unfolding.

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.