US: Consumer Sentiment

Fri Jun 26 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 94.6 94.0 to 95.2 96.1 94.6

Optimism is absolutely as strong as it gets giving a major boost to consumer sentiment which jumped well beyond forecasts, to 96.1 vs Econoday's median consensus for 94.6 and high-end forecast of 95.2. The expectations component, reflecting strong optimism for the jobs market, is an absolute standout, at 97.8 for a 12-year high and an 11.0 point surge from mid-month and a 13.6 point surge from final May. The 13.6 point spread is the largest monthly gain since March 1991.

The current conditions index also shows a very strong gain to 108.9 vs 106.8 at mid-month and 100.8 for final May. The current conditions was slightly higher in January though the 8.1 point gain from final May is the strongest since December 2013. Gains in this component point to gains for May-to-June readings on jobs and consumer spending.

In a further surprise, all this strength isn't triggering inflationary expectations which, compared to final May, are down 1 tenth for the 1-year outlook to 2.7 percent and down 2 tenths for the 5-year outlook to 2.6 percent. Both of these are very low readings for this report.

This is a stunning report, lining up with other recent positive indications on the consumer including jobless data and yesterday's strength in income and spending, the latter including big spending on autos. The consumer is very upbeat -- earning more and spending more.

Market Consensus Before Announcement
The consumer sentiment report has been very solid, as have most readings on consumer confidence. The mid-month reading for this report was much stronger than expected and included special strength in current conditions, a component that offers hints on May-to-June change in 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.