US: Consumer Sentiment

Fri Oct 16 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 89.5 87.5 to 93.0 92.1 87.2

The weekly consumer comfort index, which is on its best run in six years, correctly signaled what is a big uptick for the twice monthly consumer sentiment index, which is up nearly 5 points to 92.1 for the best reading since mid-August when troubles in China first upset the financial markets. The current conditions component, which turns on ongoing changes in the labor market, is up very solidly, more than 5-1/2 points higher to 106.7. This hints at strength for October jobs and consumer spending. The expectations component, which turns on changes in the outlook for the labor market, is up 4-1/2 points to 82.7.

There's been plenty of indications that prices are soft including inflation expectations in this report which are down 1 tenth for both the 1-year and 5-year outlooks, to 2.7 and 2.6 percent respectively. These readings, pulled lower by falling prices at the gas pump, will not be encouraging to Federal Reserve policy makers who are working to raise inflation expectations.

Inflation aside, this report is very good news, pointing to rising consumer spirits going into the all important holiday shopping season.

Market Consensus Before Announcement
Consumer sentiment showed the most reaction to market and global troubles in August and September, sinking noticeable from the low 90s to the mid-80s before bouncing back at the end of September to 87.2. A further 2-point bounce is expected for the October flash, to 89.5.

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.