US: Consumer Sentiment

December 20, 2019 09:00 CST

Consensus Consensus Range Actual Previous
Sentiment Index - Level 99.2 95.5 to 99.2 99.3 99.2

The consumer sentiment index ends December at 99.3 for a 1 tenth gain from the preliminary report and a strong 2.5 point gain from November. Strength is centered in the current conditions component which rose 4.9 points to 115.5 while the expectations component also rose, up 1.6 points to 88.9.

Declining expectations for inflation may be part of the rise in the consumer's sense of wherewithal, as the year-ahead outlook fell 2 tenths to 2.3 percent with the 5-year outlook down 3 tenths to a very low 2.2 percent. Both of these measures are at their lower bounds and offer an echo of this morning's very soft core PCE price data. For the Federal Reserve, which is trying to lift inflation, this report will not go unnoticed.

Market Consensus Before Announcement
At a consensus 99.2 for final December, forecasters see consumer sentiment holding onto December's preliminary gain.

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 and, in large part because of this, investors in the stock and bond markets enjoyed huge gains. It was during the late nineties that the consumer sentiment index hit its historic peak, reaching levels that were never matched during the subsequent 2001 to 2007 expansion nor during the long expansion following the Great Recession.

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.