US: Consumer Sentiment

Fri Apr 15 09:00:00 CDT 2016

Consensus Consensus Range Actual Previous
Sentiment Index - Level 91.8 90.0 to 94.2 89.7 91.0

A week of mostly weak economic data ends on a drop for consumer sentiment, to a much lower-than-expected 89.7 for the flash April reading vs 91.0 for final March.

Weakness is centered in the expectations component, down 1.9 points to 79.6 to signal, perhaps, emerging doubts over future job and income prospects. The assessment of current conditions is down only 2 tenths to 105.4 in an early indication that consumer activity in April will roughly match that of March, which however was a weak month judging by the retail sales report posted earlier in the week.

In another headache, long-term inflation expectations are eroding further despite the rise in oil prices, down 2 tenths for the 5-year outlook to 2.5 percent. One-year expectations are stable at 2.7 percent.

The decline in this report isn't exactly incremental but is far from a free fall, especially the resilience in current conditions. Still, low wage growth and a heated political climate are not proving to be positives for consumer confidence.

Market Consensus Before Announcement
The consumer sentiment index has been holding steady as have other confidence readings despite complaints about low wages and confusion surrounding the political campaign. Forecasters see a gain for the April flash, up 8 tenths to 91.0. As far as the economic outlook is concerned, strength in confidence readings has been an offset to this year's slowdown in consumer 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.