US: Consumer Sentiment

Fri Jan 19 09:00:00 CST 2018

Consensus Consensus Range Actual Previous
Sentiment Index - Level 97.0 95.3 to 99.0 94.4 95.9

Consumer sentiment continues to edge back, to an index level of 94.4 for preliminary January in the softest showing in six months. Weakness in the report is in the current conditions component which is down more than 4-1/2 points to 109.2 for a 15-month low. This hints at weakness for not only consumer spending in January but also perhaps for the labor market and the January employment report.

But there are positives as the expectations component is steady at a very healthy 84.4. And inflation expectations are moving in the right direction, however slowly. Year-ahead expectations are up 1 tenth to 2.8 percent from final December which matches December's preliminary reading as the best showing in nearly two years. Five-year inflation expectations are also up 1 tenth, to 2.5 percent.

January's indications are not that positive from today's sentiment report which however has consistently shown over the last year less consumer enthusiasm than either the monthly consumer confidence report or the weekly consumer comfort index which are both near 17-year highs.

Market Consensus Before Announcement
Though the consensus is up for January, consumer sentiment did slow noticeably in December especially toward the end of the month. Expectations were December's weakness offset only in part by a positive assessment of current conditions and much welcome improvement in inflation expectations. Econoday's consensus for the preliminary January consumer sentiment index is 97.0 which would compare with 95.9 in December and 98.5 in November.

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.