US: Consumer Sentiment

Fri Sep 29 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Sentiment Index - Level 95.3 94.5 to 96.0 95.1 95.3

Consumer sentiment ends this month about where it was at mid-month, at 95.1 for September which is strong but still down a sizable 1.7 points from August. Hurricane effects are likely behind the easing as respondents in Florida and Texas reported doubts about their financial situation. Yet confidence remains very high with the 9-month average at 96.2, this compares with 91.9 and 92.9 at this time in 2016 and 2015 and is the best score since 2000.

Details in the report show a 3.3 point decline for expectations to 84.4, an index that is still up 2.1 percent year-on-year, and a 0.8 point gain for current conditions to 111.7 which is up a yearly 7.2 percent. Inflation expectations, which are watched closely by FOMC policy makers, remain a key negative, unchanged at 2.7 percent despite post-hurricane pressures in gasoline prices.

Consumer spending hasn't been showing the kind of strength that consumer confidence readings have, a contrast underscored by the weakness in this mornings consumer spending data. But the strength of confidence in general, including confidence on the business side, is perhaps, along with the lack of inflation, the biggest stories of the 2017 economy.

Market Consensus Before Announcement
The consumer sentiment index showed only marginal impact from Hurricanes Harvey and Irma in the preliminary September report where the index slipped only 1.3 points to what is a still very strong 95.3. The current conditions component in fact hit the highest level in 17 years driven by extraordinarily strong confidence in personal finances. But inflation expectations, like those of other reports, remained unusually low despite hurricane-related increases in energy prices. Econoday's consensus for the final September, at 95.3, is unchanged from the preliminary reading.

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.