US: Consumer Sentiment

Fri Sep 25 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 87.1 85.0 to 92.0 87.2 85.7

Consumer sentiment popped up as expected from stock-market depression at mid-month, to 87.2 for final September from 85.7 for the flash. Still, September's final reading is the weakest since October last year. The expectations component, which tracks the jobs outlook, improved 1.2 points from mid-month to end September at 78.2 which is the lowest reading since September last year. The current conditions component, which tracks ongoing strength in the jobs market, rose 9 tenths to 101.2 for the lowest reading since October.

Inflation expectations are unchanged from August but did tick 1 tenth lower from mid-month for both the 1-year outlook, at 2.8 percent, and the 5-year at 2.7 percent.

This report is very soft but still a relief of sorts, suggesting that the worst effects of the recent market turmoil may have passed, at least assuming markets stabilize.

Market Consensus Before Announcement
Consumer sentiment shook the outlook at mid-month, falling more than 6 points to 85.7 and highlighting the risk, later echoed by the FOMC, that troubles centered in China may be having early effects in the United States. Only modest recovery is expected for the final sentiment reading, at a consensus 87.1.

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.