US: Consumer Sentiment

Wed Dec 23 09:00:00 CST 2015

Consensus Consensus Range Actual Previous
Sentiment Index - Level 92.0 90.5 to 93.4 92.6 91.8

Consumer sentiment is on the rise going into the final shopping days of Christmas, up 8 tenths from the December flash to a higher-than-expected final December reading of 92.6. The implied level in the final half of the report is in the mid-93 area which would be the strongest pace since way back in June. And in a sign of specific strength for December, the current conditions component is up 1.1 points from mid-month to 108.1 which is nearly 4 points over November. The expectations component, however, is flat, at 82.7 vs November's 82.9 and indicating caution over the jobs outlook. Inflation readings are very soft, unchanged from mid-month at 2.6 percent for both the 1- and 5-year outlooks. This report will make good reading for the nation's retailers as consumers, who are flush with cash based on this morning's personal income & spending report, make their final spending rush.

Market Consensus Before Announcement
Consumer sentiment bounced back in the December flash report, to 91.8 for a 5 tenths gain over the final November reading. Another 2 tenths gain to 92.0 is expected for the final December reading. Strength has been in the current conditions component which is good news for the holiday shopping outlook, offsetting weakness in the expectations component where optimism on the jobs outlook, despite ongoing strength in the labor market, has been softening. Inflation expectations have been very subdued.

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.