US: Consumer Sentiment

Fri May 25 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous
Sentiment Index - Level 99.0 98.5 to 99.3 98.0 98.8

A downgrade in the current assessment pulled down the final May reading for consumer sentiment to 98.0 which is 8 tenths lower than the May flash and a full point under Econoday's consensus. Current conditions fell to 111.8 vs 113.3 at mid-month and down from 114.9 in April. The decline hints at weakness for May's job market and in turn for May's consumer spending as well. Expectations also eased, to 89.1 from 89.5 at mid-month and 88.4 from April. This declines hints at less confidence in the jobs and income outlook.

Inflation expectations are flat, at 2.8 percent for the year-ahead outlook and 2.5 percent for the 5-year. Both are unchanged from mid-month but the former is up 1 tenth from April.

The decline in consumer sentiment does match a topping off in the weekly consumer comfort index and will lower expectations for next week's consumer confidence report. Yet confidence, even if slipping, still remains historically high.

Market Consensus Before Announcement
The consumer sentiment is expected to hold steady at a solid 99.0 in the final reading for May, in what would be little changed from April's 98.8. Year-ahead inflation expectations in this report have been edging higher.

The University of Michigan's Consumer Survey Center questions 600 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.