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. Why Investors Care
| Released on 10/26/07 For Oct 2007 | ||||||||||||
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Highlights
The Reuters/University of Michigan consumer sentiment index fell to 80.9 for October, down from 82.0 at mid-month and down from 83.4 in September. The index is falling at its sharpest rate since the aftermath of Hurricane Katrina two years ago. But consumer confidence indexes can be volatile, often showing major drops and major gains in sudden bursts. Current losses are concentrated in the most important sub-component, the assessment of future conditions which fell to 70.1. The assessment of current conditions is steady at a much firmer 97.6.
Inflation expectations are one of the most important readings of the report, an area routinely cited by Federal Reserve officials who want to keep inflation expectations "anchored," that is keep inflation from being a factor in household budgets. The readings do show some pressure, no doubt tied to oil prices. Twelve-month inflation expectations are at 3.1 percent, up 1 tenth from mid-month but unchanged from September. Still, this reading was higher at 3.4 percent going into the August credit squeeze. Five-year expectations are more positive, down 1 tenth from September to 2.8 percent.
Consumer confidence doesn't always predict changes in consumer spending, though it does reflect changes in the consumer's assessment of the markets, the economy, and the labor market. The dollar eased but Treasuries were unchanged in initial reaction to the report, which does point to softness in Tuesday's rival report from the Conference Board. The Conference Board's numbers on the consumer's assessment of the labor market will help build talk heading into Friday's payroll data.
The Reuters/University of Michigan's consumer sentiment index slipped to 82.0 in mid-October from 83.4 for final September. The latest reading is the lowest since August last year. The worst of it was in expectations, which fell 2.5 points to 71.6, also the lowest reading since August 2006. Troubles in the credit market and sagging home values are taking their toll on confidence. Confidence is key for the consumer to keep spending at healthy levels. Any drop in confidence would spell trouble for economic growth. Also, the Fed will be watching the inflation expectations figure, given the recent surge in oil prices toward $90 per barrel. In the latest report, 12-month expectations fell one tenth to 3.0 percent and one tenth for 5-year expectations to 2.9 percent.
Consumer sentiment index Consensus Forecast for final October 07: 82.0
Range: 80.0 to 84.0
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Consumer sentiment is mainly affected by inflation and employment conditions. However, consumers are also impacted by current events such as bear & bull markets, geopolitical events such as war and terrorist attacks. Investors monitor consumer sentiment because it tends to have an impact on consumer spending over the long run (although not necessarily on a monthly basis.) |
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