The preliminary University of Michigan Consumer Sentiment Index for February showed an uptick to 66.4 (consensus 65.0), a thirteen-month high from the final reading of 64.9 for January. In the same period a year ago, the index stood at 62.8. The report reflects some of the improved reports we have seen in new and pending home sales, mortgage applications and GDP. However, on the flipside year-ahead inflation expectations increased versus January, raising concerns with rising unemployment and about consumers’ future discretionary spending capacity. Note that two-thirds of consumers expect an economic downturn during the next year.
High prices continue to weigh on consumers despite the recent moderation in inflation, and sentiment remains more than 22% below its historical average since 1978.
US consumer sentiment and inflation expectations data from the University of Michigan
- US Univ. Of Michigan Sentiment Jan F: 64.9 (est 64.6; prev 64.6)
- The Current Economic Conditions Index increased to 72.6 from 68.4.
- The Expectations index slipped to 62.3 from 62.7.
- The one year-ahead inflation expectations increased to 4.2% from 3.9%
- The five-year ahead inflation expectation held steady at 2.9%.
The headline was close to expectations, but the market is likely going to react to the inflation expectations numbers. The rise will offer little comfort to the Fed as it looks to combat rising prices. That emphasizes the credibility of the Fed (along with falling gas prices) and gives them some breathing room.
Home prices and real estate stability are massive factors for the American consumer. The report reflects some of the improved reports we have seen in new and pending home sales, mortgage applications. The accompanying chart shows we are near 40-year lows for sentiment to buy a house. Improved in affordability would help an improvement here.
That said, there are considerable downside risks to sentiment, with two-thirds of consumers expecting an economic downturn during the next year. Notably, the debt ceiling debate looms ahead and could reverse the gains seen over the last several months; past debt ceiling crises in 2011 and 2013 prompted steep declines in consumer confidence.
Surveys of Consumers Director Joanne Hsu
About University of Michigan Consumer Sentiment Index
The University of Michigan Consumer Sentiment Index is a widely followed indicator of consumer confidence in the US economy. It is based on a survey of 500 households and measures their attitudes and expectations about the economy, personal finances, and buying conditions. The Index is released on the 10th of each month and provides insight into consumer spending, which is a significant component of the US economy.
A high reading of the Consumer Sentiment Index suggests that consumers are optimistic about the economy and their personal financial situation, and are more likely to spend money. Conversely, a low reading of the Index indicates that consumers are pessimistic and may be less likely to spend.
Overall, the University of Michigan Consumer Sentiment Index provides valuable insight into consumer behavior and sentiment, and is closely watched by economists, investors, and policymakers as an indicator of the health of the economy.
Source: University of Michigan
From The TradersCommunity News Desk