US: Consumer Sentiment

Fri Oct 27 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Sentiment Index - Level 101.0 98.0 to 103.5 100.7 101.1

Consumer sentiment held steady and very strong over the last two weeks as consumer sentiment, after a 101.1 showing for preliminary October, ends the month at 100.7. Strength is evenly split between expectations, at 90.5 for a 6.1 point gain from September, and current conditions, at 116.5 for a 4.8 point gain. This is the best showing for this report in nearly 14 years.

Personal finances are near record levels reflecting gains for personal income as well as strength in home and stock values. The report says consumers are unusually optimistic on the economy, expecting good times during the year ahead and over the next 5 years as well and without interruption.

But inflation expectations remain very low, at 2.4 percent for the 1-year outlook which is down a steep 3 tenths from September and unchanged at 2.5 percent for the 5-year outlook. The report notes that low inflation rates together with high employment make low rates of income growth acceptable.

Though consumer spending has remained in the moderate category, strong confidence has been the most striking element of the 2017 economy.

Market Consensus Before Announcement
The consumer sentiment index burst higher in mid-month October to 101.1 for the best showing in 13 years. Full employment is a main factor boosting confidence while low rates of inflation are helping purchasing power. Inflation readings in this report have been unusually weak, at only 2.3 percent for the year-ahead outlook. Despite a wide range of estimates, Econoday's consensus is for little change in final October, at 101.0.

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.