US: Consumer Sentiment

Wed Nov 25 09:00:00 CST 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 93.1 92.0 to 94.5 91.3 93.1

Consumer sentiment fell back in the last half of November to a final reading of 91.3 vs a mid-month flash of 93.1. Though November's final is higher than the 90.0 final in October, the implied reading for the last two weeks is in high 80s/low 90s area and do, unfortunately, point to a possible effect from the Paris attacks. Like yesterday's very disappointing consumer confidence report, weakness is centered in expectations with this component at 82.9 vs 85.6 for November's flash. The implied reading here over the last two weeks is in the high 70s area which is noticeably below the mid-80s trend.

But in a positive that points to no immediate effect on consumer spending, the current conditions component shows much less weakness, down only 5 tenths from the flash at 104.3. Inflation readings are up from mid-month but little changed from October, at 2.7 percent for the 1-year outlook, which is unchanged from October, and at 2.6 percent for the 5-year outlook which is up 1 tenth from October.

Consumer confidence readings are elusive indicators, often showing a sensitivity to news events that does not pan out to actual spending behavior. Still, readings are going down and could become an outside global-effects factor for the December FOMC.

Market Consensus Before Announcement
Consumer sentiment is expected to hold onto its early November gains, at 93.1 for the final reading of the month and once again the strongest result since July. Expectations were on the rise early in the month as was the assessment of current conditions. But watch for inflation readings in this report which have been weak and could become a factor for the December FOMC.

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.