US: Consumer Sentiment

Fri Apr 13 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous
Sentiment Index - Level 101.0 99.0 to 102.0 97.8 101.4

Consumer sentiment came in below the low estimate, at 97.8 for the preliminary April index. Expectations fell 1.2 points to 86.8 but the easing so far this month is centered in current conditions which are now at 115.0 and well off the extremely strong 121.2 of March. The decline in current conditions hints at trouble for April consumer spending and may be, like weekly jobless claims, an early negative signal on the month's labor market.

Inflation expectations had been inching higher but are now stepping back, at 2.7 percent for the year-ahead outlook and 2.4 percent for the 5-year which are both down 1 tenth in the month.

Though very strong in March, this report had been lagging other confidence readings which limits the impact of today's results.

Market Consensus Before Announcement
The consumer sentiment index for preliminary April is expected to come in at 101.0 vs March's 14-year high of 101.4. The current conditions component, driven by strong assessments from lower income respondents, posted a record 121.2 in March, in contrast to a tick lower for the expectations component which fell to 88.8 and reflected softer income prospects among the high income bracket. Inflation expectations in this report have been moving higher but very slowly.

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.