US: Consumer Sentiment

Thu Mar 29 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous
Sentiment Index - Level 102.0 101.0 to 102.0 101.4 102.0

Consumer sentiment held strong the last two weeks of the month as the final March index came in at a 14-year high of 101.4 vs 102.0 in the mid-month reading and well up from 99.7 in February.

The current conditions component closed the month at a record 121.2 for a 6.3 point monthly gain which points to strength for March consumer spending. The gain here is tied to rising confidence among lower income respondents in contrast to the expectations component which, at 88.8 and a 1.2 point loss, is being held back by easing confidence among higher income respondents. The report notes that the risk of rising interest rates, tied to Fed policy, is a negative factor for the high-end group.

Inflation expectations, much like the core PCE index released earlier today, are moving up but very slowly, 1 tenth higher for the year-ahead outlook to 2.8 percent with the 5-year outlook unchanged at 2.5 percent.

This report took much longer to get going than other measures of consumer confidence making its positive signal for March, especially for current conditions, a new positive in the indicator mix.

Market Consensus Before Announcement
Consensus for the final March reading of the consumer sentiment index is 102.0 which would be unchanged from the month's preliminary reading. General confidence among lower income respondents helped drive gains in the preliminary report where strength was centered in the current conditions component, offsetting a decline in expectations which were pulled lower by emerging income doubts among higher income respondents. Inflation expectations were a highlight of the preliminary report, rising 2 tenths for the year-ahead outlook to a 4-year high of 2.9 percent.

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.