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 5/16/08 For May 2008 | ||||||||||||
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Highlights
Spirits continue to fade and inflation worries continue to build, the results of the University of Michigan's preliminary report for May. The headline consumer sentiment index dropped from an already very low 62.6 in April to a yet lower 59.5. Readings this low last occurred in 1980. Weakness in the latest report is centered in the current conditions component which sank more than 6 points to 71.7. The expectations component didn't fare much better, falling a less dramatic 1.6 points but at 51.7 is at a low last seen in 1979.
Now the bad news. Inflation expectations spiked, jumping 4 tenths to 5.2 percent for the one-year outlook. That's 4 tenths of an increase since the end of April, a giant move for a reading that typically moves in 1 tenth shifts. Five-year expectations rose 1 tenth to 3.3 percent. This makes for very bad reading at the Federal Reserve.
Consumer spirits may be down but they can turn quickly. And spirits don't always make for a direct correlation with spending, as April's retail sales data proved surprisingly positive. But inflation is different. Inflation expectations, in the technical language of the day, are becoming unanchored. There was no reaction to the report which poses a double-edged problem for policy makers who need to stimulate growth without further stimulating inflation.
The Reuter's/University of Michigan's Consumer sentiment index in April came in at its lowest point since the early 1980s, falling to 62.6 from a reading of 69.5 in March. Weakness was led by the current conditions index while the expectations component also slipped. The high cost of gasoline, milk, and bread is very much on consumers' minds as inflation expectations have been edging up. One year out inflation expectations rose to 4.8 percent in April, up 5 tenths from March.
Consumer sentiment Consensus Forecast for preliminary May 08: 62.5
Range: 60.0 to 66.4
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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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