Today's Report (12/10/2021)
Comments From Consumers chief economist, Richard Curtin - Sentiment posted a small overall gain in early December (+4.5%), although it was still nearly identical to the average reading in the prior four months (70.6). The more interesting result was the large disparity between monthly gain among households with incomes in the lowest third (+23.6%) of the income distribution compared with the modest losses among households in the middle (-3.8%) and top third (-4.3%). While small differences in the direction of change are rather common, it is quite unusual to record such a large change in the bottom third: a larger one-month percentage was recorded only once before, a gain of 29.2% in June 1980. While it is usually assumed that such extreme changes represent an erroneous result due to small samples, in 1980 it was the households in the bottom income third that initially signaled the end of the first part of the double recession in 1980-82, with upper-income households following in subsequent months. The core of the renewed optimism among the bottom third was the expectation of income increases of 2.9% during the year ahead; the last time a higher gain for this group was expected was in 1981. This suggests an emerging wage-price spiral that could propel inflation higher in the years ahead.
The pandemic recession had an impact on personal finances like no other crisis in more than a half-century. While consumers' evaluations of their current and prospective financial situation have both declined, for the first time there has been a substantial gap between the two assessments. The decline in how consumers have judged their current financial situation was half as large as the decline in how they judged their future financial prospects.
What Is It?
The US Index of Consumer Sentiment (ICS), as provided by the University of Michigan, tracks consumer sentiment in the US, based on surveys on random samples of US households. This is a monthly survey of US consumer confidence about the national economic conditions.
What Are The Fundamental Effects?
It is a proven accurate indicator of the future course of the national economy. Higher consumer sentiment could lead to higher inflation.
Why Investors Care?
When consumer confidence increases, certain sectors tend to benefit sooner than others. Companies that provide consumer goods often reap the initial fruits of improved consumer sentiment. Consumers who feel more confident about the economy generally also feel better about their employment prospects and are therefore more willing to buy houses, cars, appliances, and other items. Investors should look at the stocks of car manufacturers, home builders, and other retailers that typically see sales rise when the economy begins an expansion period.
The dollar's value also tends to fluctuate in accordance with the rise and fall of the Michigan Sentiment, so traders and speculators can take positions to profit from sudden moves that may occur when the index is posted.
How Does It Affect The Markets?
CURRENCY - Foreign investors favor happy American customers, as personal spending increases.
STOCKS - The equity market prefers when consumers are confident because they are more likely to take more risky investments.
BONDS - As consumer sentiment rises it could mean that’ll spend more on riskier investments, which could lead to bond prices being reduced and yields rising to attract more investors.
University of Michigan 1 YR Inflation
University of Michigan (UoM) Inflation Expectations measures the percentage that consumers expect the price of goods and services to change during the next 12 months. There are two versions of this data released two weeks apart, Preliminary and Revised. The preliminary release is the earliest so tends to have more impact.