US: Consumer Sentiment

Fri Mar 16 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous
Sentiment Index - Level 98.8 97.0 to 101.5 102.0 99.7

Consumer sentiment has been showing less strength over the last year than other confidence readings but now the report, driven especially by the assessment of current conditions, is beginning to gain momentum. The preliminary index for March jumped more than 2 points to 102.0 which is a 14-year high.

Current conditions, where strength hints at ongoing gains for both consumer spending and employment, is up nearly 8 points to 122.8 and reflects growing confidence in the lower income bracket. Expectations, which is the other component of the index, is actually down 1.4 points to 90.0 and reflects income doubts among the higher bracket.

A very important sign of strength is in inflation expectations which are up 2 tenths to 2.9 percent for the year-ahead outlook though unchanged at 2.5 percent for the 5-year outlook. Yet the year-ahead gain is an important reading and is likely to be taken notice of at next week's FOMC meeting.

Market Consensus Before Announcement
The consumer sentiment index is expected to open March at a preliminary 98.8 and down from February's 99.7. This report, which had been flat compared to other confidence reading, jumped sharply in February despite volatility in the stock market.

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.