US: Consumer Sentiment

Fri Dec 22 09:00:00 CST 2017

Consensus Consensus Range Actual Previous
Sentiment Index - Level 97.0 96.0 to 99.0 95.9 96.8

Consumer sentiment slowed in December, down to a final 95.9 which, compared to the mid-month preliminary reading of 96.8, implies a roughly 95 score for the last two weeks for the softest showing since September. But a positive for the holiday shopping outlook is that the current conditions component is firm, at 113.8 vs November's 113.5.

Weakness in December is in expectations which are down 4.6 points to 84.3. Comments on tax reform were split with Republicans calling it a positive and Democrats a negative. Year-ahead inflation expectations, at 2.7 percent, improved 2 tenths vs November with 5-year expectations unchanged at 2.4 percent.

Levels in this report have been edging lower but still remain the best in 17 years in what points to a strong holiday season for consumer spending.

Market Consensus Before Announcement
The consumer sentiment index has been edging back from a 100.7 expansion peak in October but still came in at a very solid 96.8 in the preliminary reading for December. The current conditions component showed special strength in December's first report in what was a positive indication for holiday sales. Econoday's consensus for the final December index is 97.0.

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.