US: Consumer Sentiment

Fri Apr 27 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous
Sentiment Index - Level 98.0 97.0 to 102.0 98.8 97.8

Improvement in the expectations component helped give a lift to the consumer sentiment index which ends April at 98.8, still down noticeably from March's 14-year high at 101.4 but up a full point from the mid-month flash.

Expectations proved little changed, down 4 tenths from March to 88.4 vs the mid-month flash of 86.8. Strength here points to confidence in the jobs outlook. But the component for current conditions did slow, ending April at 114.9 for a sharp 6.3 point decline in what is not a positive signal for April consumer spending. Inflation expectations remain very soft, down 1 tenth for the year-ahead outlook to 2.7 percent and unchanged at 2.5 percent for the 5-year outlook.

Comparing the flash with today's final reading implies a roughly 100 pace for the sentiment index in the last two weeks of the month, a very solid pace consistent with other consumer confidence readings which, in contrast to sales however, have been holding at or near record highs.

Market Consensus Before Announcement
Based on a dip at in the mid-month preliminary release, the consumer sentiment index for final April is expected to come in at 98.0 vs March's 14-year high of 101.4. The assessment of current conditions fell back in the preliminary report as did inflation expectations.

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.