US: Consumer Sentiment

Fri Dec 08 09:00:00 CST 2017

Consensus Consensus Range Actual Previous
Sentiment Index - Level 98.8 96.5 to 101.1 96.8 98.5

The consumer sentiment index, at 96.8 for preliminary December, remains elevated though continues to edge back from October's expansion peak of 100.7. Immediate indications on consumer spirits, in what is a positive for the holiday shopping outlook, are in fact very positive as the current conditions component actually rose sharply, up 2.9 points from November to 115.9 for an expansion peak of its own (17-year high).

This component is getting a boost from rising income expectations which is a reflection of the strong jobs market and also perhaps that income gains will not be eaten away by inflation. At least not much by inflation as year-ahead inflation expectations posted a long-awaited outsized rise of 3 tenths to what is still a soft 2.8 percent. This, however, is sometimes volatile and will have to be confirmed by future readings. Five-year inflation expectations are up 1 tenth to 2.5 percent.

The step back in today's report is in expectations where the component fell 4.3 points to 84.6. This was pulled down by a decline in economic confidence among Democrats and reflected, the report says, their concerns about the impact of proposed tax changes.

But this report is really about positives and is underscored by buying plans for durables which are improving this month in what is auspiciuos news for the nation's retailers.

Market Consensus Before Announcement
The consumer sentiment index edged back in November but still came in at a very solid 98.5. The report notes strong certainty among consumers for gains in income and employment. A slight gain is the call for the preliminary December index to 98.8.

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.