US: Consumer Sentiment

Wed Nov 22 09:00:00 CST 2017

Consensus Consensus Range Actual Previous
Sentiment Index - Level 98.1 96.2 to 100.0 98.5 97.8

Consumer sentiment edged higher from mid-month but down slightly from October, closing out November at a very solid 98.5. This report, like other confidence readings, has been holding steady at expansion highs all year. The report notes strong certainty among consumers for gains in income and employment and also, and this is a problem for FOMC policy makers, unusual certainty that inflation will remain very low, at 2.5 percent for the year-ahead outlook and 2.4 percent of the 5-year outlook.

Looking at components, current conditions end November at 113.5 which is slightly below October's 116.5. This is a marginal loss but still doesn't point to acceleration for consumer spending which is important given the start of holiday shopping. The expectations index also edged lower to 88.9.

Market Consensus Before Announcement
The consumer sentiment index edged back in the preliminary November report to a 97.8 level that remains historically very high. Inflation expectations improved in the report as expectations for wage growth hit an expansion high. Econoday's consensus for preliminary November is for little change, at 98.1.

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.