US: Consumer Sentiment

Fri Sep 15 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Sentiment Index - Level 96.0 94.0 to 97.3 95.3 96.8

Hurricanes Harvey and Irma did cut into consumer sentiment but not by much. The preliminary sentiment index for September fell to 95.3 vs 96.8 in August with weakness centered in expectations where the component fell 4.3 points to 83.4.

But weakness isn't the story of this report, rather unusual strength. The current conditions component rose 3 points to 113.9 for the best level in nearly 17 years. Assessments of personal finances, like those in the monthly consumer confidence report, are the best of the expansion in strength that belies weakness in wages but is consistent with strength in home values and also the stock market.

Inflation expectations show some hurricane effects but again not much. Both 1-year and 5-year expectations are up 1 tenth to 2.7 and 2.6 percent respectively.

Hurricane Katrina back in 2005 made a much bigger initial impact on this index, at more than 12 points, than Harvey and Irma together. Backed by full employment, this has been a year of unusually strong confidence which has, however, yet to give consumer spending the same kind of lift as evident in this morning's retail sales report.

Market Consensus Before Announcement
Despite Hurricane Harvey and the approach of Hurricane Irma, forecasters are not calling for much of a downdraft in the consumer sentiment index for preliminary September. The consensus is at 96.0 vs 96.8 in final August (preliminary August was 97.6).

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.