US: Consumer Sentiment

Fri Jul 31 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 94.1 93.5 to 97.1 93.1 93.3

Consumer sentiment softened in July, to 93.1 vs a mid-month flash of 93.3 and against 96.1 in June which was near the recovery high. The expectations component, which had been running very hot, fell back this month to 84.1 vs June's 87.8. The decline here, mirrored by Tuesday's consumer confidence report, reflects a bit less optimism in the jobs outlook.

The current conditions component softened less noticeably, to 107.2 from June's 108.9. This reading hints at a slight month-to-month fall off in consumer activity. Inflation expectations rose slightly in the month, up 1 tenth for the 1-year outlook to 2.8 percent and up 2 tenths for the 5-year outlook which is also at 2.8 percent.

Readings on consumer spirits have all been going in reverse this month but are coming off very high levels. Still, the declines are not an indication of strength for the labor market.

Market Consensus Before Announcement
The mid-month flash for consumer sentiment fell sharply to 93.3, and an 8 tenth rebound to 94.1 is expected for the final reading. The current conditions component was especially weak in the flash report hinting at month-to-month weakness for consumer 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.