US: Consumer Sentiment

Fri Feb 02 09:00:00 CST 2018

Consensus Consensus Range Actual Previous
Sentiment Index - Level 95.0 94.4 to 96.0 95.7 94.4

Consumer sentiment has shot higher the last 2 weeks as January's final reading comes in at 95.7, which is at the high end of Econoday's forecast range and up a very sizable 1.3 points from the mid-month preliminary reading. Today's gain implies a 2-week run at roughly 97 which would match recent levels for this index in November and October.

But the strength is in future expectations which nevertheless leaves this component at a year-on-year decline of 4.4 percent. The component for current conditions fell in the month which is a reminder of yesterday's weakness in unit auto sales and which is also not positive for the January retail sales report. Year-on-year, current conditions are down 0.7 percent. Inflation expectations are steady, unchanged at 2.7 percent for the year-ahead outlook and up 1 tenth to 2.5 percent for the 5-year outlook.

The year-on-year rates in this report, headlined by a 2.8 percent decline for the overall index, contrast sharply with the 12.4 percent annual increase in Tuesday's consumer confidence index. Though more subdued than other consumer readings, the late-month bounce in today's sentiment report, despite the hint of weakness for January spending, echoes the strength of this morning's jobs report.

Market Consensus Before Announcement
Consumer sentiment continued to edge back in the preliminary January index, to 94.4 in what was the softest showing in six months. Weakness was in the current conditions component which fell more than 4-1/2 points to 109.2 for a 15-month low and what hints at weakness for January consumer spending. Econoday's consensus for the final January consumer sentiment index is 95.0.

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.