US: Consumer Sentiment

January 13, 2017 09:00 CST

Consensus Consensus Range Actual Previous
Sentiment Index - Level 98.6 95.5 to 100.0 98.1 98.2

Consumer sentiment is holding at cycle highs but isn't climbing further, at 98.1 for the preliminary January index for a 1 tenth dip from December. Current conditions are up slightly this month, 6 tenths higher to 112.5, while expectations are down slightly, at 88.9 vs 89.5. Inflation expectations, which had been edging lower, are moving back to trend, rising a sharp 4 tenths for the year-ahead outlook to 2.6 percent and up 2 tenths for the 5-year outlook to 2.5 percent.

Post-election confidence readings have been very high but have not equated to the same proportional punch for consumer spending which, nevertheless, has been respectable. The report notes that partisanship is extreme right now with 44 percent of the sample citing the importance of government policies (whether positive or negative). The cycle average for this reference is 20 percent.

Market Consensus Before Announcement
Consumer sentiment has been surging since the November election, up more than 10 points to 98.2 in December for a new cycle high. The expectations component has been showing the greatest strength but current conditions have also been very strong and offering a positive indication for consumer spending. A negative, however, has been a sharp and puzzling downturn underway in inflation expectations. Forecasters see a further rise for the preliminary January reading, up 4 tenths to 98.6.

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.