US: Consumer Sentiment

Fri Mar 02 09:00:00 CST 2018

Consensus Consensus Range Actual Previous
Sentiment Index - Level 99.5 98.0 to 100.3 99.7 99.9

Consumer sentiment, at 99.7, ended February roughly at the mid-month reading and well above January's 95.7. The tax cut appears to be the driver of the optimism and was quantified in yesterday's personal income & outlays report where personal taxes fell 3.3 percent in data for January.

The two components in today's report show similar gains: current conditions up 4.4 points to 114.9 which hints at improvement for February consumer spending; and expectations up 3.7 points to 90.0 to underscore the consumer's confidence in the outlooks for jobs and income.

Readings on inflation expectations, in contrast to inflationary concerns in the financial markets, show no pressure whatsoever, unchanged for a third straight month at 2.7 percent for the 1-year outlook and unchanged for a second straight month at 2.5 percent for the 5-year outlook.

Consumer confidence remains a standout feature of the economic data, in contrast to actual consumer spending which has been more moderate than robust.

Market Consensus Before Announcement
The consumer sentiment index, reflecting strength in the preliminary February report, is expected to end the month at a consensus 99.5 vs January's 95.7. Before the sudden mid-month gain, this report had been running at much less optimistic levels than the rival consumer confidence report.

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.