US: Consumer Sentiment

Fri Dec 11 09:00:00 CST 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 92.0 86.5 to 94.0 91.8 91.3

Consumer sentiment is bouncing back after ebbing following the Paris attacks. The flash December index comes in at 91.8 which is 5 tenths above final November and perhaps several points above the trend during the last two weeks of November. Strength is centered in current conditions which, up nearly 3 points to 107.0, is a positive indication for holiday spending. Expectations, however, continue to lag, down 9 tenths to 82.0 to indicate caution over the long-term jobs outlook. Inflation readings, reflecting low fuel prices, remain subdued at 2.6 percent for both the 1- and 5-year outlooks. This report, following strength in core retail sales, is another positive for the consumer which continues to benefit from current strength in the jobs market and low gas prices.

Market Consensus Before Announcement
Consumer sentiment fell back sharply in the last half of November to a final reading of 91.3 vs a mid-month flash of 93.1 but is expected to improve slightly to 92.0 in the flash reading for December. Weakness in this report, and in other confidence reports as well, has been centered in expectations and not current conditions which is a plus for holiday sales. Nevertheless, lowered expectations, presumably the effects of global issues, could begin to hold down expectations for growth in 2016. And note the low forecast in the Econoday consensus, at 86.5 in a reading that could scramble the outlook for holiday 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.