US: Consumer Sentiment

Fri Dec 09 09:00:00 CST 2016

Consensus Consensus Range Actual Previous
Sentiment Index - Level 94.1 92.8 to 98.0 98.0 93.8

Post-election confidence continues to build, lifting consumer sentiment by more than 4 points to a 98.0 level that hits the very outside of the Econoday range and is 1 tenth away from the index's recovery peak hit last year. Consumers specifically cite expectations of new economic policies as the biggest positive. A rise in the current conditions component, up 4.5 percent from November to 112.1, offers an early indication of strength for December's holiday spending while a gain for expectations, up 4.3 percent to 88.9, points to confidence in the jobs outlook. But the rise in spirits isn't translating to any improvement for inflation with both the 1-year and 5-year outlooks down 1 tenth, to 2.3 percent and 2.5 percent respectively. Inflation aside, this report is another signal that the economy may be closing out the fourth-quarter with strong momentum.

Market Consensus Before Announcement
Consumer sentiment jumped in November following the November 8 election and forecasters see no retreat for the preliminary December index, to a consensus 94.1 vs a final November reading of 93.8 and a preliminary November score, which did not include the effects of the election, of 91.6.

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.